
Class 
Book 
Copyrights 

CQKRIGHT DEPOSIT. 



A PRIMER OF 




IN CATECHISM FORM: 
QUESTIONS and ANSWERS 

BEING A SYNOPSIS OF LECTURES 
ON POLITICAL ECONOMY 

AS DELIVERED IN THE PONTIFICAL COLLEGE JOSEPHINUM 
FIRST VOLUME OF A SERIES ON 

THE SOCIAL SCIENCES 

PROFESSOR OF THE SOCIAL SCIENCES 

IN THE JOSEPHINUM. 

Columbus, Ohio 






Copyright applied for by Dr. Joseph Ocfi, 



M 12 1920 



)CI.A559686 



•VvO 



JfaramiriL 



The present volume affords a general survey of the 
science of Political Economy as it is taught in the Pontifical 
College Josephinum. The scope of the actual treatment in 
the lecture room was, of course, a far wider one than is ap- 
parent from the subject-matter herein contained. The ar- 
rangement of the matter in questions and answers was sug- 
gested to the author by practical considerations, to wit: 
the field of Political Economy is so wide and its details so 
various and' ramified as to baffle even the very industrious 
and capable student when confronted with the ordinary text- 
book. The presentation of the subject-matter in the form of 
a Catechism, as here realized offers advantages to the stu- 
dent which even a very concise and good textlbook cannot 
rival. Besides, it delimits, to the advantage of both student 
and professor, in a convenient fashion, the subject-matter 
which the student is expected to have digested in the course 
of the lectures and which the professor may rely upon the 
student knows. 

The present volume is the first of a series to be writ- 
ten and published by the author, the entire series compris- 
ing, in distinct treatises and, possibly, volumes, the entire 
cycle of Social Sciences as taught in the Seminary of the 
Josephinum, to wit: Political Economy; Money and Bank- 
ing; Social Politics (Social' Reform and Social Reform Move- 
ments) ; Socialism (a thorough historical and critical trea- 
tise of all forms of Socialism, especially the "Scientific" 
Socialism of Karl Marx, Communism and Anarchism) ; Po- 



FOREWORD 

litical Science; American Political Science; The Constitution 
of the United States. Each volume contemplated will appear 
in the form of this initial one : the form of Catechism. The 
first volume following the present one will be on Socialism. 

The expert in Political Economy will, the author an- 
ticipates, miss a treatise on Money which, however, could not 
conveniently be incorporated in the present volume. Nor did 
it appear advisable to present a treatise on Cooperative Un,- 
dertakings of workmen or the middle classes, be they co- 
operative undertakings of buying and selling for consump- 
tion (Consumers' Cooperative Stores), be they agricultural 
cooperative, or agricultural, industrial and small tradesmen's 
cooperative credit associations. These cooperative underta- 
kings will be more aptly treated in the volume on Social Po- 
litics. For similar reasons a fuller treatise of Land, Land 
Speculation, and Land-Reform Movements were reserveb 
either for "Social Politics" or for "Socialism" in its various 
forms. The ethical aspects of the present organization of 
Distribution: Rent (from Land), Interest (from Capital), 
Profit (from tihe Undertaking), and Wage (from Labor) 
can, also, be treated more aptly and more fully in Social Po- 
litics, as it is the purpose of the author to do. 

In presenting this first volume of the series to the pub- 
lic the author modestly hopes he is rendering the cause of 
education in Political-Economic thought and judgment a 
service. The first volume, being written, as it was, amid 
the stress and distraction of many other duties, will not 
escape the criticism either of the expert or the layman. The 
author will be grateful for criticism and for hints helpful 
toward publishing a better revised edition in the future. The 
proceeds of this volume are dedicated to the Re-Building 
Fund of the Josephinum. 

The Author. 



INTRODUCTION 



THE SOCIAL SCIENCES — ECONOMICS. 
Political Economy is a member of the large group of 
social sciences whose common material object is man as a 
social being. Man in his psychic aspects is the object of 
scientific study in a twofold regard: either as an individual, 
or as a social being. All sciences treating of the psychic na- 
ture of man in its social manifestations, constitute the so- 
cial sciences. The principal sciences are: moral, law, juris- 
prudence, political science, philosophical social science, re- 
ligion, anthropology, ethnology, statistics, international 
law. 

Most natural processes have the quality of constancy, 
while the social processes are inconstant, dynamic, i.e., they 
continually change their character,intensity, and sequence, 
so as to be beyond calculation. Natural processes are com- 
putable, forward or 'backward, with unerring certainty, 
whereas social, psychic processes thwart every attempt at 
reducing them to any law. Hence the essential difference 
between the knowledge of facts of natural science and the 
knowledge of facts of social science. Processes in natural 
science reveal the agency of general laws in a manner as to 
make a single individual fact appear the legitimate and 
absolutely true representative of every fact within a given 
order or series. Once the relation of hydrogen and oxygen 
for the purpose of generating water is established,, the re- 
sult will be valid for all other possible experiments in which 
the right relation is observed. The knowledge of the con- 
struction and vital processes of a (single organism in >a given 

V 



INTRODUCTION 

species, is equivalent to the knowledge of all other possible 
organisms or processes of the same kind within that species. 

Not so, however, in the realm of historical and social 
fact. Natural science has for its purpose to convert quali- 
ties into quantities, and to learn from the nature of a 
single individual organism or process the entire range of 
organisms or processes of the same order. Historical and 
social facts and processes cannot, like those of natural 
science, be measured, for they are not the necessary 
result of natural agencies, but the result of the free psychic 
nature of man. Human psyichic actions cannot be reduced 
to unities of natural energy. They are individual, psychic ; 
and the individual free human agent can never be the sub- 
ject of scientific calculation as to his decisions. While, in- 
deed, human nature is essentially the same in all men, the 
individual forces, tendencies and volitions preponderate 
over that which is universal and common in all men in a 
degree as toifoaffle computation. 

The basis and foundation of all history and of all social 
phenomena is man as an (social) individual. The individual 
can never be actually calculated, measured as to his acts. 
Therefore there can be no so-called historical or social laws. 
Every historical fact, every social event, however great its 
similarity with other happenings of the same order, reveals 
individualistic traits constituting it a unique fact in all the 
realms of social life. 

The substance and basis of all social action in the state, 
in economy, in law, in religion is man. But none of these 
phases and phenomena of the social life is in itself sub- 
stance, but function. All social life is function, not sub- 
stance, but function of a psychic nature, although it results 
in physical action. All human social action is outwardly 



INTRODUCTION 

transmitted by means of psychic force. Hence all social 
function coming within the scope of social sciences, re- 
spectively, is classed among the psychic mass^phenomena. 
Thus , state life, economic life, religious life, art, science, 
jurisprudene are psychic mass-phenomena. 

These few observations reveal at once the essence of 
all the social sciences. They are sciences of human rela- 
tions and of the exterior effect of these relations. What 
has been said of the preponderance of the individualistic 
forces and of the psychic incomputability of man also dis- 
proves the claims of the so-called Sociologists that there 
are laws of social evolution from which the development of 
society in the past can be deduced and which, they pretend, 
form a secure basis of calculation for the future. Like- 
wise, the economic materialistic conception of history of 
classic Socialism is untenable in view of the psychic-indivi'- 
dualistic character of social fact. 

What has been said of the psychic nature of all mass- 
phenomena applies with equal cogency to the world of eco- 
nomics. Political Economy is psychic function transmitted 
outwardly and projected upon external nature. 

Science is the knowledge or apprehension of truth from 
its cause and established by certain proof or demonstration. 
The material object of Political Economy as a science is 
the economic life of people ; the formal object is the parti- 
cular point of view from which the economic life of a people 
is, and must be considered. Now Political Economy is a 
science founded on the truths of the essentially immutable 
social-moral nature of man ; of certain divinely established 
elements of social life (social intercourse, government, au- 
thority, obedience, rights and duties, all moral elements in- 
dispensable to any social commonwealth), of certain abso- 
lutely necessary conditions of public and private material 
welfare. 



INTRODUCTION 

The formal object of Political Economy, therefore, de- 
duced from the nature of man and of society (which is not 
atomistic) is: the science treating of the material welfare 
of a people, inasmuch as this welfare can and should be 
attained within the political organization, by means of a 
right and equitable organization of the economic affairs, 
of public and private economic activities and institutions. 

This definition implies the t e 1 e o 1 o g i c a 1 charac- 
ter of the economic activity of individual and nation — 
the telos or end being the common welfare. It also empha- 
sizes the solidarity of economic energies and actions which 
is deduced from the divinely established social nature of 
man. It, furthermore, recognizes the universal grant of 
right given to all men to share of the fruits of the earth 
and of their labor: "Increase and multiply, and fill the 
earth, and subdue it. And everything that moveth and 
liveth shall be meat for you" (Genesis) The econo- 
mic conquest of the earth is the fulfilment of this grant and 
duty. 

According to Adolph Wagner, all scientific knowledge 
must begin from the study of the human soat. Economic 
problems being inseparably connected with man, his in- 
stincts, desires, and ultimate destiny, are eminently psy- 
chological problems. Economics as a science, according to 
Wagner, is in one way psychology applied. 

Therefore, in all economic matters man must always 
be considered superior to nature, superior to technics and 
absolutely superior to the economic principle, which may 
never be applied against man, (cheap child labor, low 
standard of living, unwholesome conditions, and lack of 
safety appliances in the factory, etc.) but only for him 
Man is always the subject, the end and center of Economy, 
endowed by God with the right to sovereignty over the 
irrational world. This is aptly called by Pesch the 
anthropocentric - teleological conception of 
Economics. 



f nltttral l-roturow. 



CHAPTER I. 



1. Mention ten social sciences at random. 

Languages, history, law, jurisprudence, statis- 
tics, political science, social ethics, social mores, 
political economy, finance, social politics. 

2. Which sciences are embraced in the term Social Science 

as generally used in schools and in our school? 

Political economy, science of population, statis- 
tics, finance, social politics, treatise on Socialism, 
Communism, Anarchism, political science in general 
and in particular, including a study of the American 
State and of our Constitution. 

3. May the term Sociology be applied to these sciences? 

By no means, for Sociology is as yet merely an 
attempt at a philosophy of association, or a theory 
of society in general and it is objectionable from a 
Catholic viewpoint no less than from a scientific one. 

4. Give one of the possible definitions of Political Economy 
as one of the functions of social life? 

Political Economy is the totality of activities 
and institutions directed to the purpose of providing 
for the material wants of a people. (Explain the 
terms "political" and "national" as applied to 
Economy.) 

5. Give derivation of the word Economy? 

From oikos and nomos, meaning the order, law 
or government of the house. (Thus in Gevnan: 
Volkswirtschaft, and - Hauswirt, Gastwirt, Land- 
wirt, Miethswirt.) 

1 



2 FUNDAMENTAL NOTIONS. 

6. Why is economic activity called purposive? 

Because true economy is activity, i.e., not only 
activity for the purpose of providing, but of pro- 
viding with prudence, providence and a calculation 
of cost and gain. 

7. Is the homo oeconomicus a universal type, or is he the 

product of history, environment and the pressure of 

necessity? 

The homo oeconomicus is the product of history 
and progressive civilization. He is not universally 
prevalent even today. 

8. State the stages of economic development. 

Home economy, village, territorial to state 
economy. Or, according to the criterion of ex- 
change: domestic (autarchic) economy, barter, 
money, credit economy. 

9. In what sense is Political Economy anarchic? 

In sofar as not all economic activity is subject 
to law or regulation, and especially insofar as pro- 
duction for the market is regulated, if at all, only by 
speculation and the prudent policy of trusts and 
Kartells. 

10. What are the characteristics of a truly human and pro- 

gressive Economy? 

That it be not mere wealth getting, but such an 
equipment of man with economic goods as will also 
promote his cultural and moral interests and provide 
for a state of disability and old age. 

11. What is the economic principle? 

It is the principle of the least cost combined 
with highest gain, the principle of the least effort 
with greatest result. The economic principle is 
merely the application of practical reason to the eco- 
nomic world. 



CHAPTER II. 

ELEMENTARY FACTS OF POLITICAL 



Article I. 

12. What is a want? 

A want is the sensation of a defect, a void, a 
necessity coupled with the desire to remove the 
same. In the objective sense "want" denotes the 
commodity or good desired. 

13. Give some classifications of wants and explain them. 

Native and acquired wants ; material and im- 
material; wants of existence and wants of luxury 
and culture ; true and imaginary ; immediate and 
remote. 

14. What is the minimum of existence? 

It is a dynamic category and varies with the 
stage and state of civilization, of rank and custom. 
It is never a starvation minimum. 

15. What is the Standard of Life? 

It is the minimum of existence which assures 
such a steady satisfaction of wants as custom, sta- 
tion in life, and the prevailing standard of culture 
has established or demands. It is not fixed but dy- 
namic. 

16. What is a commodity? 

A commodity is a material thing or a service 
apt to satisfy a human want. 



4 ELEMENTARY FACTS OF POLITICAL ECONOMY 

17. What are free, what are economic commodities 

(goods) ? 

Free commodities are such as are unlimited in 
their abundance and are afforded gratis by Nature, 
economic goods are such as are the object of human 
care, sacrifice and economic effort and are limited in 
quantity. 

18. Are moral and intellectual goods classed with economic 
goods? 

No. .Neither religion, nor justice, morality, edu- 
cation, conscientiousness, etc. But they are valuable 
assets in the world of Economics. 

19. What is Utility? 

Utility is the aptness of a good to satisfy a want. 
The degree of utility is determined by the importance 
of a want, or by the urgency of the want. The utility 
of goods is the measure of their value. 

20. What is (economic) value? 

It is the importance we attach to commodities 
with reference to their aptness to satisfy our wants. 

21. Is value contingent on our estimate? 

No. It exists independently of our estimate or 
esteem'. Our subjective valuation is only the actual 
recognition of a commodity's intrinsic economic va- 
lue. 

22. What category is Value? 

It is not an absolute category or quality of a thing 
belonging to the physical being of it 1 (like sd^e, 
weight, color, etc., of a body), but it is a teleological 
category, and ds always related to a purpose, an ideal. 
Thus a piece of art has value inasmuch as it responds 
to a certain artistic ideal, a quantity of coal has value 
because it corresponds to a certain purpose: of crea- 
ting heat. The value of an economic commodity is 
the degree of its importance as an economic good. 

23. State the relation and character of 

Value in Use and Value in Exchange. 

These two Values are not coordinated but subor- 



ELEMENTARY FACTS OF POLITICAL ECONOMY. 5 

dinated, for the value in exchange is determined by 
the value in use, i.e., by the degree of satisfaction a 
good will afford to the last one whom it reaches for 
consumption. For, exchange is not a purpose in it- 
self, but its purpose is use and consumption. 

24. What, then, is Value in Exchange? 

It is the quantitative relation in which values in 
use of one kind are exchanged for values in use of 
another kind. As material goods with different pro- 
perties and uses or utilities commodities differ, but 
their exchange values give them a common being, 
economic unity (one bushel of wheat for a quantity 
of cloth) . "The quantity of fungible value in use 
which is found in all socially recognized commodities 
is the substance of value in exchange", Knies. 

25. What other element besides their usefulness determines 

the exchange value of commodities? 

The available and necessary supply. 

26. How must all value be considered? 

In its teleological character. (Opposed to this 
teleological theory of value is the genetic theory of 
Marx who makes labor the measure and criterion 
of economic value.) 

27. What is Marginal Utility? 

The utility of the last unit of the stock of a given 
commodity is the marginal utility of that commodity 
to that person. 

28. What deductions do you derive from the doctrine of 
Marginal Utility? 

1. The value of a commodity is determined by its 
Marginal Utility. 

2. That not the abstract genus of wants (diamonds — 
bread) , but the concrete want whose satisfaction de- 
pends on a commodity determines the value thereof. 

3. That the only true character of value is teleo- 
logical. 

4. That production must be subordinated to consump- 
tion, that is, to demand. 



6 ELEMENTARY FACTS OF POLITICAL ECONOMY. 

29. What is Production, Consumption, Yield, Income? 

Production is the creation of the utilities by dint 
of human labor. — Consumption is the use of commo- 
dities. — Yield is the result of production in a given 
period. — Income is that part of the net yield which 
is available for immediate consumption ; income is 
that part of the yield which exceeds the cost of pro- 
duction. 

30. What is the supreme purpose of economy according to 

the economic principle? 

Production at lowest cost with highest yield. 

31. What is an Economic Unity? 

An economic unity is a person or an organization 
whose will and wants determine the conduct of an 
economy (the individual, the family, a stock company, 
the State, etc.). 

32. What is an economic organization? 

It is a union of men into a permanent economic 
relationship which is founded on economic principles. 

33. Give some forms of Economic Organizations. 

The family, the manor, the slave plantation, the 
community household of a city or state, the entire 
political economy of a people, a stock company. 

34. What is the character of our present economic ex- 
change organization? 

It is an organization of the market, of buyers and 
sellers, of supply and demand, dominated not by the 
interest of highest production but of highest gain or 
profit. It is the organization of self-interest, of 
Individualism. 



STAGES AND DEVELOPMENT OF P.E. 
Article II. 



STAGES AND DEVELOPMENT, OF 
POLITICAL ECONOMY. 

35. State the criteria or principles of the development of 
Political Economy. 

1. The object or direction of production (hunting 
and fishing; 'the pastoral stage; agriculture and 
craft; agriculture craft and commerce. List). 

2. The forms and conditions of exchange (domestic 
economy with barter ; money economy, credit econo- 
my. Hildebrand) . 

3. The form of organization of the units of economy 
(exclusive home economy, autarchical ; city economy ; 
national economy. Buecher). 

4. The progress of political organization (village, city, 
territorial, national ecconomy. Schmoller). 

36. What may be said of these stages as to their accurate 

delimitation? 

They are historically not sharply distinct, they 
overlap, and the prior stage only gradually yields to 
the succeeding one. They represent, each in turn, a 
form which predominated at a given time. 



Article III. 
POLITICAL ECONOMY A SCIENCE. 

37. What is the material, what the formal object of the 
science of Political Economy? 

The material object is the economic life of a peo- 
ple, the formal object (i.e., the point of view of) Po- 
litical Economy is the ordaining of the economic life 
of a people to the material welfare of the people as 
the social goal, corresponding with the social nature 
(and supernatural end) of man. 

38. Offer a definition of Political Economy. 

Political Economy is the doctrine or science trea- 
ting of the material welfare of the people, inasmuch 



8 STAGES AND DEVELOPMENT OF P-E. 

as this welfare can and should be attained within the 
political organization, by dint of a just and legitimate 
organization of economic affairs, and of public and 
private institutions and activities. 

39. Which four departments has Political Economy? 

Descriptive Economy, History of Economy, Po- 
litics of Economy (tariff, revenue, banking, railroad, 
commercial and similar legislation), and the Theory 
of Economy. 

40. What is the relation of Political Economy to Ethics? 

Political Economy may never be at va- 
riance with the principles of morality. Moral is a ne- 
gative guide to Political Economy and a criterion of 
the worth and tenableness of economic doctrine. Po- 
litical Economy will never teach that which is phy- 
sically impossible and should never teach what is mo- 
rally indefensible. The very existence and steady 
growth of the social reform movement is evidence of 
the recognition of ethical postulates for Political Eco- 
nomy. 

41. Mention important papal pronouncements setting forth 

the ethical demands in Political Economy. 

Ethical principles for economic and social 
relations between capital and labor in Quoad apos- 
tolici muneris 28 Dec, 1878; Rerum novarum 
15 May, 1891:Graves de communi. 18 Jan., 1901. 
The doctrines embodied in these encylicals have been 
summarized in a Motu Proprio of Pius X, 18 Dec., 
1903. addressed to the Christian Democracy of Italy. 
(II Pesch, pp. 441). 

42. Describe the purpose and goal of the sound Political 

Economy of a people in accordance with Christian, 
Principles. 

That there be no too great differences of wealth, 
not "two nations" in a state (Disraeli), and 

a) That even the lowest strata of laborers have an 
income insuring a respectable standard of living; 

b) That there be intermediary classes by whom the 
touch and sympathy between the lower and upper 
classes are maintained; (Mitte-standspolitik, higher 



STAGES AND DEVELOPMENT OF P.E. 9 

classes of laborers, small merchants, craftsmen, bu- 
siness officials, farmers) ; 

c) That it be possible for the lower to rise into a 
higher class, granted their fitness. There should 
be an economic selection and survival of the fittest, 
but not in the brutal Darwinistic sense of the 
classical Individualists. 



CHAPTER III. 



PRINCIPAL ECONOMIC SYSTEMS, 
SCHOOLS, AND THEORIES. 



43. Mention the principal Economic Systems. 

Mercantilism, Physiocratiam, Labor-Indus- 
trial-or Exchange Value System of Adam Smith, the 
National Economy System of List, Carey's agrarian 
adaptation of List's theory. 

44. Which succession of facts led up to the Mercantile 
System? 

Discovery of America, sea route to India (1498) 
by which trade line was shifted from Italy and Con- 
stantinople and South Germany to Spain and the 
countries of the West; silver and money, banking; 
the Spanish Jews migrating to Germany and Eng- 
land; the splendid example of wealth through com- 
merce of Florence, Pisa, Venice, Genoa, Amain; the 
ambitions of dynasties ; the struggle of the city with 
the prince; the invention of gunpowder and the eli- 
mination of lesser nobility as a military feudal factor ; 
the rise of a civilian army of state officers ; the rise 
of royal treasuries, standing armies. 

45. Sum up the philosophy and policies of the MercanA 

tilist System. 

Undue valuation of money as a national asset; 
balance of trade as a preeminent ambition ; export ; 
extension of home industry ; protective tariffs, ca- 
nals, trade-roads, removal of export duties on finished 
products, advancement of industries by grant of pri- 
vileges, exemption from taxes, invitation of foreign 
and prohibition of emigration of home artisans; co- 
10 



PRINCIPAL ECONOMIC SYSTEMS. 11 

lonies; papulation policy: cheap foodstuffs, aid to 
agriculture, premiums to large families, indulgent 
views on illegitimacy, Navigation Acts. 

46. Mention some of the foremost Mercantilist Statesmen. 

Colbert, Elizabeth Cromwell, Louis XIV, 
Peter the Great, the Great Elector, Frederic the 
Great, Leopold I, Joseph II. 

47. What was the chief error of the Mercantilists? 

That money is wealth, while it is only a medium 
of exchange ; they forgot that the value of money is 
contingent on the possibilities of its function, ex- 
change, which in its turn is profitable only When there 
•is an abundance of commodities to be exchanged. The 
Mercantilists did not sufficiently recognize the true 
economic wealth of a country — commodities, and 
transferred the economic philosophy of the economic 
individual (money is wealth) to the nation. 

48. What do you know of the great Navigation Act of 1651? 

It is the most comprehensive and most stringent 
of a number of navigation acts, was passed by Par- 
liament under Cromwell and was designed and des- 
tined to stimulate the building of a great English mer- 
chant marine; it forbade the importation of goods 
from Asia, Africa, and America in other than Eng- 
lish ships English-manned, and of goods from any port 
of Europe in other than English vessels. It forbade 
to foreign vessels the right to bring to England goods 
not produced in their countries, and the act was di- 
rected chiefly against Holland which then possessed 
the carrying trade of the world. It was reenacted 
in 1661 and repealed in 1849. 

49. Describe the system of Physiocratism. 

Physiocratism is a philosophy as well as an eco- 
nomic system and is based on the Law of Nature or 
Natural Right doctrines which gained ascendancy 
toward the close of the 17th. century. The gist of this 
philosophy is : man is by nature free, has a right to 
possess property, a right to pursue his own selfish 
interests ; the doctrine of free competition, emanci- 
pation of economic life from state control, freedom 
of economic career, of contract — laisser faire — 



12 PRINCIPAL ECONOMIC SYSTEMS. 



as a reaction against the overdrawn control of Mer- 
cantilism. 

Economically, the Physiocrats under the leader- 
ship of their chief representative, Francois Quesnay, 
(1694-1744) taught that not industry but rawstuff 
production is the source of wealth; hence, an aboli- 
tion of the Mercantilistic trade provisions and a 
return to a strict agricultural policy. The Physiocrats 
overestimated the mere bulk of rawstuff production, 
too regardless of the demand for same and of its uses. 
Emancipation of economics from Mercantilistic ab- 
solutism and from uneconomical hindrances (obsolete 
tariffs and other restrictions) is the great merit of 
the Physiocrats. Besides Quesnay, Turgot (French 
minister of finance in 1774), Mirabeau (father of the 
celebrated revolutionist), Joseph II, and others re- 
present this school. 

50. Describe the system of Adam Smith. 

His is the Labor- Exchange Value -or Industrial 
System. It, too, is a revolt against Mercantilism. It 
amplifies Physiocratism. It is Individualistic. The 
great and distinctive feature of Smith's system is 
the clarity with which it developed the idea of e x- 
change value as a goal of national economics. 
Not the magnitude or quantity of production, but 
its exchange value is the source of national wealth. 
Not money, not balance of trade, not agriculture, 
but labor when applied to things that will have 
exchange value, is the object of an enlightened nation- 
al economic policy. Hence division of labor within 
and between nations, each one of whom will most 
wisely produce that for which their country, abilities 
and aptitude best fit them. — Smith, however, over- 
emphasized the principle of creating exchange value 
in that he did not take into account the demand 
which generates exchange value. He ignored the 
importance of the principle of marginal utility in the 
world of trade. 

Adam Smith, born in Kirkaldy, Scotland, 1723, 
theological and philosophical student, professor of 
Logics at Glasgow University, traveller .and later cm 
writer on economical problems, his chief work "An 



PRINCIPAL ECONOMIC SYSTEMS. 13 

inquiry into the nature and causes of the wealth of 
nations" (1776), died in 1790— is the chief repre- 
sentative of the socalled "classical", and the liberal, 
individualistic school of economists. Smith has 
given the principle of free competition its clearest 
formulation and has championed its cause more than 
any economist before and most of economists after 
him. Smith believed in the existence of, or a uni- 
versal tendency to, harmony in the world, also in the 
world of trade and business, and believed this har- 
mony would unfold itself to perfection if each indi- 
vidual would be permitted full freedom of economic 
enterprise, free contract, etc., without interference by 
the state. He unwittingly and unintentionally be- 
came the theoretical author of all the misery, star- 
vation, child and woman labor, that were consequent 
upon the recognition of free competition, and of the 
false principle of the equality of men in business; 
the inequality of the poor laborer — who had to "sell" 
his labor at any price in order not to starve — and 
the rich manufacturer became terribly apparent in 
the early era of industrial revolution in England, 
from 1776 - 1848. The doctrine of Smith on free 
competition was especially welcomed in industrial 
Manchester, England, whence also its name of Man- 
chesterdiom (this term is more in vogue in German 
terminology than in English Economics). 

The postulate of Smith that business be not in- 
terfered with by the state, already familiar to Ques- 
nay and all the Physiocrats, was given expression to 
this day in the motto: laisser passer, laisser aller — 
to let pass and to let alone, a phrase used to this 
day, and often heard in the pleadings of capitalists 
and their lawyers before the congressional com- 
mitities sdrtftiimg on labor bills in Washington. 

51 State the system cf Frederick List. 

He might have entirely displaced the Smithian 
school of Economics if he had been as great a scholar 
as he was an agitator. The historical, realistic 
method of Economy has received through him a 
greater advancement than through any other single 
man in Europe. He represents a revolution of thought 



14 PRINCIPAL ECONOMIC SYSTEMS. 

and science from the Natural Rights school to the 
inductive and historical methods. 

His doctrine is one of the truly national 
economics and insists on the development of the pro- 
ductive forces of a nation. These productive forces 
are the laws of the state, its institutions, science, art, 
religion, and nioral/intelJigtenc^, legal security and 
adove all : the harmonious cooperation of agriculture, 
industry and commerce in the nation.. No 
nation ought to buy in the cheapest mar- 
kets, like the single merchant; nor do protective 
tariffs represent monopolies enriching only a few 
beneficiaries. Protective tariffs do raise the price of 
articles protected but they involve sacrifices only 
for the great boon of economic independence in the 
future. His protective policy is one leading to eco- 
nomic self-dependence of the nation (Erziehungs- 
zoelle). The loss sustained by the nation in exchange 
value through its protective policy is the indispensable 
capital necessary to the strengthening and rearing of 
a home industry. (List, born in Reutlingen, 1789 
writer, lecturer, political agitator, 1824 in America, 
outlines policy for American and German railways; 
his principal work "Das nationale System der poli- 
tischen Oekonomie" ; died by his own hand in 1864) . 

52. State the system of Carey. 

Carey is the foremost of earlier American econo- 
mists. He adopts List's ideas on national economy, 
and he bases all exchange value produced in a nation 
on the productive forces of nature. A peculiarity of 
Carey's system is that he classes land with capital. 
(Carey, born 1793, son of Irish immigrant, died 1879). 



CHAPTER IV. 

CONDITIONS OF DEVELOPMENT OF 
POLITICAL ECONOMY OR 

THE CAUSES AND SOURCES OF 
NATIONAL WEALTH. 

53. State the categories of conditions and sources of na- 
tional wealth and economic development. 

They are natural, social, political, and personal. 
They are, severally and in particular, natural: 
climate, zone, flora and fauna, fertility, coast and 
surface formation, inland waterways, water-power 
(Canada's, Switzerland's, Norway's water power; 
the Mississippi, Amazon, Rhine, Danube, the Great 
Lakes, Panama Canal ; the insular or coast line po- 
sitions of Great Britain, Japan, Phoenecia, Greece 
and the flourishing trading cities of mediaeval Italy: 
the feud over the Rhine, the Yalu, Fiume, Constanti- 
nople; the Mississippi a guaranty for the perma- 
nence of the American Union) ; coal, iron (the great 
industrial states' of the Germanic race: England, 
Germany, United States — Pennsylvania, New- 
castle) : 

h) social : population, size, distribution of sexes and 
ages;higher and lower classes; wealth distribution; 
marriages, births, mortality, national health con- 
ditions. 

c) political: government, freedom or otherwise, 
laws on land, labor, and capital ; freedom of enter- 
prise; freedom of labor contract, unions, tariffs or 

15 



16 CONDITIONS OF DEVELOPMENT. 

free trade; great stock companies and powerful or- 
ganization of enterprises in trusts to meet foreign 
competition, banks, and system of finances, etc. 
d) personal : training, standard of schools and edu- 
cation, progress of technics, organizations of em- 
ployers and employees, public and private welfare 
institutions, free labor — slave labor, etc. 

54. Give some illustrations of the determining influence of 
climate on a nation's economy. 

a) Climate determines rain, and the proper dis- 
tribution of rainfalls in the seasons, not their quan- 
tity, co-determines the fertility of the soil; 
b) The Gulf-stream has made western and northern 
Europe inhabitable and fertile, while Siberia and La- 
brador are partly barren. The Carpathians, Alps, 
Himalayas are the protecting barriers for the fertile 
regions of the Balkans and Hungary, of Switzerland, 
Spain. Italy and India. 

The Rocky Mountains. Ozarks, Appalachians 
and Alleghenies protect neither from the cold winds 
of the north nor from the hot winds from the south 
owing to their meridional course. 

55. What distinction is there between "Nation" and 

"People" on the one hand and "Population" on the 
other? 

The former denote juridical, political and cul- 
tural categories and express the unity of the inhabi- 
tants of a territory, while "Population" is a quanti- 
tative category and expresses the people's totality. 
But the racial and national characteristics of a people 
and its cultural qualities are no ]ess a determinant 
in their economy than their quantity. 

56. What do you know of the populations of ancient 

cities? 

Their size was grossly exaggerated. Babylon 
and Niniveh were not real cities but vast territories 
with colossal fortifications. Even great mediaeval 
cities had hardly more than 5000 souls ; London had 
35 000 in 1377, and 180 000 in 1580. City develop- 
ment was perhaps greatest in Italv where the city 
states flourished and the nobility did not make war 
upon the cities but lived in, and advanced them. 



CONDITIONS OF DEVELOPMENT. 17 

57. Which causes produced the modern city? 

a) The extension of the sources from which the 
urban population was supplied with foodstuffs ; (this 
extension came with the abolition of the trade 
barriers and by a more liberal customs policy) . 

b) (Progress in the Development of the means of 
transportation. 

c) Freedom of migration. 

d) The presence of the prince or sovereign who in the 
Middle Ages had mostly dwelt without the city. 

e) The rise of the factory system. 

58. On what is the increase of population contingent? 

On natural (physiological), climatic, political, 
legal, religious and economic conditions. 

59. State the physiological conditions. 

The physiological prolificness of women ex- 
tending from the 18th to the 45th year. Sterility 
of either sex is not at all infrequent. According 
to Prinzing — see Pesch, Nationalcekonomie, II, 
p. 545 — about 10-12 per cent of all marriages are 
sterile. Polygamy — legalized in Persia,in most 
Asiatic countries, in Africa, in Turkey, and per- 
mitted to the Hebrews in Patriarchal times — tends 
to increase, polyandry tends to decrease growth of 
population. Primitive peoples have largely practised 
voluntary birth control, or infanticide, or both. 

60. On what does the number of marriages and births 

largely defend? 

On the proportion of people of marriageable age, 
on economic conditions. The number of births (it 
ranges from 20 - 60 per thousand souls per annum, 
the mean number being 30 births) on the average 
age at which women in a given country marry, on eco- 
nomic conditions, on social status, on morality. 

61. On what is mortality, another determinant of the 

growth of population, dependant? 

The general state of civilization : protection of 
life and health, hygiene, medicine, housing, canali- 
zation, food laws, protection from occupational di- 
seases. (Another important factor of movement 
of population is emigration). 



CHAPTER V. 

THE WOMAN QUESTION. 



62. State the modern Woman Question. 

The industrial revolution has largely alienated 
woman from her pristine domestic occupations and 
has left her helpless and resourceless in the face of 
new conditions under which the majority of men 
and women are constrained to seek a gainful occu- 
pation in the industrially organized world. So many 
widows and adult daughters must likewise do. But 
women's energy and talent, from a moral-social 
viewpoint, should not be lost to society and should 
be given a place and recognition in the fabric of the 
social-economic world. 

63. From what did the Woman Question spring? 

From the French Revolution in which were pro- 
claimed the rights of man as an individual. Woman 
inferred from this that equal moral-social recognition 
was due to her. The civil matrimonial contract based 
merely upon human law had its baneful influence 
upon the new attitude of woman. (According to 
Johann Mueller and August Roesler the Woman Ques- 
tion has the liberalism of the French Revolution for 
its father and social misery for its mother.) 

64. Mention the principle for the occupation for Woman.. 

First, it should be stated that the traditional re- 
serve in regard to woman labor has yielded to the 
necessities of modern times and, according to Kath- 
reln, they should be admitted to such occupations as 
their endowment renders them fit for, so long as the 
interests of morality and the welfare of family do not 
forbid. 

18 



THE WOMAN QUESTION. 19 

65. Mention in detail .possible fields of occupation for 
Woman. 

In the telephone, telegraph, postal and railroad 
service, in bureaus, women have shown capacities 
often equal, if not superior, to those of men. In 
general woman is more adapted to work and positions 
demanding patience and agility than men whose na- 
ture fits them more for occupation requiring energy 
and self-control. Other fields for woman labor are: 
domestic service, charitable and school work, cer- 
tain factory work, medicine. (Woman appears to 
be less adapted to fields of technics, art, sculpture, 
architecture, science, philosophy, and politics; [even 
Gladstone was of the conviction that woman, by the 
exercise of political duties, would impair her peculiar 
feminine charms and graces].) 



CHAPTER VI. 

MALTHUSIAN1SM. 

Article 1. 

66. Who was Malthus? 

Robert Malthus, born 1766 at Dorking near 
London, theologian, Anglican minister, expert in the 
poor laws and poor welfare, arrived at the conclu- 
sion that the principal cause of poverty is overpopu- 
lation, his theory being set forth in his book "An 
Essay on the Principle of Population", 1798. Died 
1834. His Essay is the most important and epochal 
work on population ever written. 

67. State the Malthusian theory of population. 

Malthus based his Essay on the assumption that 
all animal life is capable and has a tendency to in- 
crease indefinitely. Given a sufficient supply of food 
population doubles in 25 years. The means of sub- 
sistence, however, do not increase at an equal rate. 
Hence there arises a clash between the increase of 
population and the slower increase of the means of 
subsistence, the result being that the existing over- 
population is checked, reduced by hindrances. These 
hindrances are either of moral order — abstinence 
from marriage or voluntary abstinence in marriage, 
moral restraint, or vice and misery (poverty, illness, 
wars for the means of livelihood). Malthus desig- 
nates the natural increase of population as a geo- 
metrical one progressing as 1, 2, 4, 8, 16, 32, etc., 
while the increase of foodstuffs progresses only math- 
ematically: 1, 2. 3, 4, etc. Hence population is ne- 
cessarily limited by the means of subsistence'. Mal- 

20 



MALTHUSIANISM 21 

thus, consequently advises that the preventive checks 
be cultivated and countenanced by the governments ; 
he also advises a severe reduction of poor relief and 
a rigid control of license to marry, a license which in 
his opinion should be altogether denied the poor who 
have no prospects of being able to support a family. 

67. Is the doctrine of Malthus entirely new? 

No. Long before him the discrepancy between 
the increase of population and increase of means of 
subsistence had been recognized and discussed by 
Plato, Aristotle, Montesquieu, Quesnay, Franklin, 
James Stuart, Arthur Young, and others. (Some- 
what later Darwin extracted from the Malthusian 
doctrine the elements for his theory on the struggle 
for existence and the survival of the fittest) . 

68. What, then, is the Problem of Population? 

It is the problem which inquires into the means 
and ways by which the means of subsistence can be 
brought into harmony with the increase of population. 

69. And what is the Principle of Population? 

The totality of causes and forces which actually 
determine and regulate the increase of population. 

70. Who are among the followers of Malthus? 

His followers, called the Pessimists, are Ri- 
cardo, Wm. Thos. Thornton, John Stuart Mill, 
James Mill, Mac Culloch, Say, Quetelet, Luden, 
Rau, v. Mohl, Ruemelin, Roscher, Sclhsefne, Cohn, 
Conrad, Wagner, Philippovich, Gamier, Schmoller, 
and others. 

71. Who are Malthus' opponents? 

Among his opponents, called Optimists, are the 
Socialists (Marx, Engels, Proudhon, Henry George, 
Fourier,) Louis Blanc, Mario, Kaut'sky, however, 
share Malthus' ideas ; the biologists Spencer, Nossig, 
Reich, Graham, Senior, Bastiat, Carey, List, 
L. Pohle, Karl Diehf. 

72. Has Mathus anything in common with Neo-Mal- 

thusianism, or Birth Control? 

By no means. He led personally a blameless life 
and cannot be held accountable for the perversion of 
his counsel of moral restraint. 



22 CRITICISM OF THE MALTHUSIAN DOCTRINE. 

73. Which three factors, then, enter into the principle 
of population according to Malthus? 

The instinct and tendency of propagation, the 
limits of the means of subsistence, the checks. 



Article 2. 
CRITICISM OF THE MALTHUSIAN DOCTRINE. 

74. Offer a criticism of Malthus' Principle. 

a) Although Malthus in the second edition of his 
Essay introduces moral restraint as a check of over- 
population and as a force of reason, he does not duly 
recognize reason as a regulating force against the 
tendency to increase. The sexual instinct, in its 
isolation, is indeed blind. But it does not exist in 
isolation. Reason not only controls the instinct but 
even affects the instinct itself (the ''tendency"). 

b) It is logically and methodically wrong to compare 
the abstract capacity and tendency of the human race 
to increase beyond the means of subsistence with the 
actual increase of the means of subsistence. The 
comparison should have been made between the ab- 
stract capacity of either, and then the greater in- 
crease would have been shown to be on the side of the 
means of subsistence. 

c) The argument or statement of geometrical and 
arithmetical progression is entirely false. The real 
element of truth contained in his latter statement is 
the "law of diminishing returns". (Perhaps a too op- 
timistic view is taken by the scholarly Pesch — as 
well with regard to the law of diminishing returns, 
as with regard to the problem of population in general. 
His opposition to Malthus is inspired by his great ab- 
horrence of the proposed moral restraint which, he 
fears, is a peril to morality). 

d) One of the chief errors af Malthus consists in this 



CRITICISM OF THE MALTHUSIAN DOCTRINE. 23 

that he based his theory of the discrepancy between 
increase of population and increase of the means of 
subsistence on merely natural and individual factors, 
i.e., the sexual instinct, to the disregard of the cul- 
tural elements of society: the prevailing economic 
system, order of property, custom, morality, and 
the changing economic capacity for population in the 
various countries. (Henry George violently opposed 
to the Malt'husian theory, in "Progress and Po- 
verty, etc.") 

75. What is Carey's (American) attitude to the Mal- 

thusian theory? 

Carey denies the geometrical increase of the race 
and asserts that of the means of subsistence. Be- 
sides he shares Spencer's biological theory that the 
progressive intellectual activity of men will result 
in a retrogression of their generative powers. 

76. State Spencer's theory in this regard. 

The less differentiated any organism, plant or 
animal, the greater its generative faculty. The pro- 
gress of mental culture will result in a more perfect 
development of the human brain which, with its 
whole nervous system, absorbs the vitality and power 
of man to the impairment of his generative capacity. 
Eventually the human race may reach, according to 
Spencer's unproven and improbable theory, a stage 
of lasting equilibrium between births and deaths. 
According to Spencer individuation and propagation 
are contrasts and stand in an inverse ratio to each 
other. 

77. State the attitude of Socialists, especially Marx, to 

the Malthusian Principle. 

Socialists do not accept the Malthusian Princi- 
ple. Malthus accepts the conflict between population 
and means of subsistence as inevitable and necessary, 
Socialists represent the conflict and the existence 
of an ''industrial reserve army" as the result of 
the concentration of capital and the displacement 
of human labor by machinery. The elimination of 
anarchical production and of capitalistic distribution 
of wealth will solve the population problem. 



24 CRITICISM OF THE MALTHUSIAN DOCTRINE. 

78. What is Neo-Malthusianism? 

It is a group of schools of economists, philoso- 
phers, writers, physicians with an immense following 
among the people who do not believe in the efficacy of 
moral restraint as counseled by Malthus, but who in 
theory and practice adopted the policy of voluntary 
birth restriction and deliberate human interference 
in the natural act of generation. The two-children 
system is a miserable concession of Neo. Malthusian- 
ism to ethics and population. Neo-Malthusianism is 
older than its name. 

(The ancient world, Greece and Rome, owes its 
decline and final collapse largely to the Neo-Mal- 
thusian practise. Barbarians tilled the Roman soil, 
Chinese coolies in France; the decline of Venice is 
partly due to this vice.) 

79. Mention some of the promoters of Neo-Malthusianism. 

Francis Place (London), Robert Owen and his 
son Robert Dale, John Stuart Mill; the Malthusian 
League founded 1879 for the purpose of spreading 
birth control. From England the movement spread 
to Holland and thence to the rest of the world. The 
president of the League boasted in 1910 of the pre- 
vention of the birth of 21,000,000 children of the 
proletariate ( See Allgem. Rundschau, Munich, 
Nov. 9, 1918). 



CHAPTER VII. 



80. Give a Synopsis of this great subdivision of Economic 
Study. 

In this subdivision we consider: 

a) Production and the factors of production; 

b) The organization of production and gain. 

81. Mention the personal factor of production and the de- 

tails connected therewith. 

The personal factor of production is human labor, 
and we consider under it : the essence of labor, classes 
of labor, undertaker and laborer, labor systems, cost 
of labor, supply of labor, limitation of possible em- 
ployment of labor. 

82. Mention the impersonal (material) factors of produc- 

tion and details connected therewith. 

A. Land: a) as the basis of production; 

b) as the depository of reproducible forces and 
materials ; 

c) as the depository of non-reproducible forces and 
materials ; 

d) the law of diminishing returns*. 

B. Capital: Land and capital; the economic 
significance of productive capital; machinery; ori- 
gin and consumption of capital; economic or social 
capital, private capital ; the capitalistic undertaking. 

25 



26 PRODUCTION. 

Article 1. 
PRODUCTION. 



S3. What is production? 

Production is a technical process and is the de- 
liberate creation of a new commodity. 

84. What kind of production is the aim of our economic 
system? 

Not a mere technical production, nor the 
greatest volume of production of utilities, but the 
production of commodities marketable at a profit. 

85. What is Productivity? 

Productivity is the degree of the technical re- 
sult of production. 

86. What is Profitableness? 

Profitableness is the degree of the economic re- 
sult of production. 

87. Which are the elements of production? 

Labor and Nature. 

88. To what kind of production (technical or economic) 

do the elements, to which do the factors of produc- 
tion respond, and explain why? 

Elements of production respond to technical pro- 
duction, factors of production to economic production. 

(Production considered as an economic process 
involving cost has only a part of its natural coopera- 
tive elements for elements of production, to wit, 
land and capital plus labor. These elements, in- 
volving cost, are called the factors of produc- 
tion. Their cost and value enter into the economic 
process and calculation of production. 

89. In what other way are the factors of production 
of importance? 

In thiat they form the baisils of the ratio of the 
distribution of the yield and income of the produc* 
tion between land, capital, and labor. 



PRODUCTION. 27 

90. To what three kinds of Personal agencies are all 
the economic activities reducible in our economic or- 
ganization? 

To individual forces (the single undertaking, 
Einfleflumternehmen) ; organizations of undertakers 
and employees and free economic associations of 
every description and, thirdly, public authorities: 
municipal, state, and national". 

91. Why does the conservation and cultivation of indi- 
vidual forces and individual (as against socialized and 
socialistic) initiative appear to be a matter of great 
economic importance? 

Because the family, the cell of Society and State, 
must rely chiefly on individual energy and because 
all socialized and collective or organized effort is de- 
pendent for its success on the capacity and the sense 
of responsibility of individual forces (Carnegie 
Rockefeller, Siemen-Schuckert, Jim Hill, Ballin and 
innumerable others). 

92. Has absoitite economic freedom ever prevailed in or- 
ganized society? 

No, not even in the heydey of Individualism. 

93. What kind of category is freedom of economic action? 

It is not an absolute category, but a dynamic one, 
and is subject to expansion or contraction according 
to the exigencies of the times, conditions and eco- 
nomic milieu. (Even personal liberty is not an abso- 
lute category, nor is slavery and serfdom absolutely 
wrong) . 

94. What is competition? 

Competition is the mutual attitude or conduct of 
the^ representatives of demand and supply in the in- 
dividualistic pursuit of their interests under the 
system of economic freedom. 

95. State some advantages of competition. 

. Economic alertness, energy, thoroughness, effi- 
ciency, cheaper products, promotion of talent, ad- 
vancement of technics, breaking of monopoly. 

96. Mention some of the means by which competition, in 

the interest of society, is regulated and curbed. 



28 PRODUCTION. 

a) By ethical considerations, justice, public 
opinion ; 

b) By associations of employers and employees 
(organized labor) ; 

c) By state intervention: trade marks, labels, patent 
and authorship rights, labor and factory legislation. 

(The principal causes demanding restriction of 
free competition are the inequality of men and human 
greed. Economic freedom is not an absolute indi- 
vidual right but a social status whose value consists 
in that it is a guaranty of the social purpose, which 
purpose is anti-individualistic and solidaric). 

97. What is labor? 

Labor as an economic category is the conscious 
and deliberate manifestation of the human power for 
the purpose of producing an economic utility. 

98. State some classes of labor. 

Productive and unproductive (according as the 
expenditure of labor actually results in the creation 
of economic value or not; according to the Mercan- 
tilists, Physiocrats, and the school of Smith only that 
labor is productive which increases the national 
wealth, i.e 1 ., which increases the supply of precious 
metals, of rawstuffs, and exchange values, respec- 
tively) ; free and un-free ; skilled and unskilled ; 
mental (planning, projecting and directive), and 
executive. 

99. What is a labor system? 

A labor system is the comprehension of legal and 
economic conditions entering into the labor contract 
or the relation of employment and determining the 
choice of labor, the terms on which labor is to be ex- 
ecuted (place, time, relation to the employer, labor 
income, and cessation of labor relation). 

100. Mention the various systems of labor. 

Unfree labor (serf and slave), free labor (in- 
dividualistic), free (collective) labor, public labor 
(whose terms are denned by law, the employer 
being the Nation, State or Municipality) . 

101. What do you say of the opposition, in the modern 



COST OF LABOR. 29 

capitalistic world, between undertaker and laborer? 

This opposition is less of a technical than of a 
social and economic order. Technically, the laborer 
will continue subject to the undertaker, be he an 
individual or a corporation; this subjection is un- 
avoidable and is not odious ; but the social and eco- 
nomic subjection of the laborer to the undertaker 
is at the core of the modern social and labor question. 

[Note. Labor among the Ancients was largely 
slave labor. Labor was a stigma of dishonor. Even 
Aristotle the most distinguished philosophical 
thinker of pre-Christian times deemed labor un- 
worthy of a free man. Cicero the Roman statesman 
and philosopher, accounted labor as a disgrace. The 
artisan or tradesman was not admitted to public 
office in Rome. — The Mosaic law, on the contrary, 
ennobled and dignified labor. Much more so Christ, 
in His own person, and in His gospel. The parable 
of the vineyard, His manifold exhortations. St'. 
Paul, a tent-maker, relies upon his own manual labor 
for his livelihood. "He who does not labor shall not 
eat". The courage of a man to preach the doctrine 
of labor to a civilization resting on slave labor ! The 
apostles fishermen. The Church has been the 
champion of laborers and of the gospel of labor. 
Catholic civilization also a civilization of labor. The 
monks, the gilds blessed by the church and im- 
bued with her principles and spirit. The markets 
under ecclesiastical protection.] 



Article 3. 
COST OF LABOR. 



102. How does cost of land, capital and labor in genera! 
affect the cost of the product? 

The lower the c^st of land and capital the cheaper 
will be the cost of the product as far as that cost is 
involved in the cost of land and capital (cheap land = 



30 COST OF LABOR. 

cheap food ; cheap leather = cheap shoes)'. However 
the same does not hold good for labor, and the cheap- 
est labor does not insure the cheapest product. For 
the cost of labor is not expressed in the mere price 
of the product, but in a composite quantity composed 
of : time of labor, wage of labor, and product of labor. 

103. On what physical and physiological facts and observa- 
tions is the relative cheapness of high-priced labor 
based? 

a) Reduction of time of labor results in an in- 
crease of physical and mental capacity insuring an 
increase of efficiency ; 

b) increase of wages results in a higher standard of 
living ; 

c) machines are often more profitably utilized under 
high wage system. 

(However, there is a limit to the increasing 
profitableness of higher wages, especially when com- 
bined with shorter hours. — According to Koester 
"The Price of Inefficiency" there has been &&- 
tablished an annual loss to the Economy of the 
United States of $702 000 000 from the mere failure 
to adopt "common sense practices" in daily 
operations.) 

104. Which factors determine the supply of labor in a 
country? 

a) Facts of population : distribution and numeri- 
cal relations of sex, age. marriages ; 
b legal facts : freedom, restriction of child and 
woman labor, labor hours for adults ; 

c) social and economic organization: distribution of 
productive and unproductive labor (army and official, 
dom, f,i.) ; distribution of wealth which may or may 
not enable many to live lives of leisure ; 

d) educational standards. 

105. What are the limitations of possible employment? 

The available supply of labor; division or speciali- 
zation of labor, organization and stage of national 
economy (a country in agricultural stage offers 
less opportunity for employment than in industrial 
stage), supply of capital, demand for products in 
home and foreign markets. 



LAND. 31 

What do you know of the right to labor, i.e., the title 
of the laborer to employment? 

The right to labor was demanded by Fourier and 
Gonsiderant itn 1839 ; was recognized by the French 
national assembly in 1848, and was denied by a 
Swiss popular vote in 1894. The right of the laborer 
to be employed by the State implies the right of the 
State to control the means of production and to con- 
trol the free movement and migration of its citizens. 



Article 4. 
LAND. 

107. Was land ownership originally communistic? 

Prehistoric and historical research have shown 
that collective land ownership was n o t a universal 
institution, and that it has not even been a permanent 
institution among any known people. Even the "Mir" 
the communal tenure of land in Russia, is an insti- 
tution of m'ore recent times. In 1906 the "Mir" 
was; dissolved and the distribution of land among 
the individual peasants begun, with the result of 
their impoverishment and their exploitation by land 
speculators. 

108. Where should land, as the basis of production, be sit- 
uated from a viewpoint of economy? 

At or near the source of the rawstuffs consumed 
in the production (saw mills near the forests, steel 
mills near the ore mines or at the most advan- 
tageous point between the ore and coal mines). 

How is this principle of the localization of plants 
near their rawstuffs observed in the United States? 

The most conspicuous instances are the great 
meat (hogs and cattle) industries in the richest corn 
section of the North Central States, the smelting in- 
dustries in the coal and iron regions of Pennsylvania 
and Ohio, the milling industy in the wheat belt of 



32 LAND. 

the Northwest. The localization of the textile in- 
dustries outside the cotton belt (in Massachusetts, 
which, in 1905, had about 60% of the cotton spindles), 
Pennsylvania, New York, and the N. England 
States, is an economic waste. Since 1870 the pro- 
cess of localizing the textile industries in the cotton 
belt has made considerable progress. For the world 
trade : the cotton fields are in southern U.S., Egypt, 
India (China, silk), while the textile centers are 
chiefly in England, New England States, Germany, 
France and Italy. Japan is now rising as a powerful 
competitor in the textile industry. 

110. To what kind of land does the law of diminishing re- 
turns apply? 

To land as the depository of replaceable forces 
and material (natural fertility, crops, forests). 

111. State the law of diminishing returns. 

The productivity of land is capable of increase by 
the addition of intensive labor or fertilizers or both, 
but the possible increase is not only limited, but 
will progress at a diminishing rate after the point 
of highest relative productivity has been reached, 
in such a measure that further additions of capital 
and labor will ultimately result in economic loss or 
waste. 

112. Is the law of diminishing returns a natural law? 

Yes (you can't raise a thousand bushels of wheat 
on one acre irrespectively of any amount of capital 
and labor expended in the productive process). 

113. What is the social-economic import of the law of 
diminishing returns? 

It has an important bearing on the principle of 
population and is a complement of the Malthusian 
theory. It is also of a decisive importance for the 
valuation of the Socialistic dogma of the unlimited 
progressiveness and productivity of the soil. 

114. State the formula of progressive cost and progressive 
cheapness of return for capital invested in agriculture 
and in industry respectively. 

The last bushel is the dearest, the last yard is 
the cheapest. 



CAPITAL. 33 

115. Is this principle absolute and without limit? 

No; for also in industrial production, de- 
pending as it does, on rawstuffs the point of di- 
minishing returns is ultimately reached. 

116. Does the law of diminishing returns apply also to 

labor? 

Yes, and it means that shortening of hours 
and raising the standard of living and effi- 
ciency by higher wages cannot progress indefinitely 
but that a marginal point will be reached beyond 
which further additions of investment in the form 
of wages to laborers employed or in additional 
laborers will bear no result beyond the maximum of 
product and of profit. 

117. Mention some irreplaceable materials of which land 

is the depository. 

All minerals, coal, oils, cements, stones, etc. 
Also nitrogen, potassium, and phosphoric acid are 
withdrawn from the soil by vegetation, but nitrate 
is now extracted and supplied from the atmosphere. 



Article 5. 

CAPITAL. 

118. State the differences existing between land and capital 
as material factors of production. 

a) Land is not produced nor reproducible; 
ib) supply of land is fixed and strictly limited ; 

c) land is immobile ; 

d) land is indestructible ; 

e) the uses of land are far less variable and less 
immobile than the uses of capital (above all they 
are subject to climate, disturbances from the 
elements : drought, frost, heat, flood, vermin, and 
the surface character of the soil (deserts, swamps, 
rocks; mountains, exclusive forest vegetation). 



34 CAPITAL. 

119. What kind of capital is a social economic asset? 

Productive capital as such, i.e., capital that 
really is a factor of economic production. (Pro- 
ductive capital when it is viewed as a means of 
private profit is not social, but acquisitive capital 
Erwerbskapital, as f.i., a shoe factory, a dairy, 
even a farm.) 

120. What is acquisitive capital? 

It is the wealth or property of a person or a 
group of persons which is used as a means of gain or 
profit (thus even land in the hand of a farmer 
merchant or of a real estate dealer is acquisitive 
capital). 

121. What chiefly is capital in the Socialists' view? 

It is the wealth of those who use it as a means of 
exploitation of the laborer. The element of private 
ownership is peculiarily emphasized in the Social- 
istic conception of capital. 

122. What is value capital or capital values? 

Value capital or capital values are all other forms 
of capital, in a derivative, metaphorical sense, such 
as money, investment papers, stocks, bonds, 
mortgages, obligations. These papers are called 
capital because they represent or mostly represent 
actual productive capital to shares of whose pro- 
ductivity the papers grant a title, either fixed as in 
bonds and preferred stock, or indefinite as in 
common stock representing actually working pro- 
ductive capital (the factory and its machines are 
social, i.e., real capital, your bond or share in stocks 
you hold in the factory is a Value Capital — Wert- 
kapital — and private capital) . 

123. Give a definition of Capital Values. 

Capital Values are those property values which 
consist only in titles, not in actual goods, inasmuch 
as these titles are the sources of revenue. (It is 
characteristic of all form of Capital Values that they 
represent Value quantities existing alongside of their 
real basis — productive capital. Alongside of the 
stocks is the undertaking in which they declare 



CAPITAL. 35 

the holder's partial ownership and interest; along- 
side of the mortgage deed is the real estate as the 
guaranty for title expressed in the deed. These 
and all other forms of Capital Values have their 
own existence separate from their respective real 
bases and are exchanged, bought or sold without 
change in the undertaking they represent.) 

124. Is the increase of Capital Values (stocks, bonds, 
mortgages, obligations, government papers) in the 
hands of the people a criterion of increasing wealth 
in the social, i.e.. productive capital? 

Not necessarily. Because the issue of Capital 
Values may at times progress at a more rapid rate 
than the actual development of productive capital 
or the productive capital may have been so mis- 
managed as not to yield the products in which the 
Capital Values promise a share (over-capitalization, 
watered stock). 

125. What part of the social capital of the American 

people do the Liberty Bonds represent? 

None whatever with the exception of such por- 
tions as represent values invested in the building 
of merchant ships or other forms of economic 
utility. The interest on the bonds and the repay- 
ment of their face value at the time of their matur- 
ity are paid by the Government from funds derived 
from the incomes of all classes, but all these in- 
comes lastly are derived from the productivity of the 
social capital or from titles to portions thereof. 

126. What then do the billions of Value Capital in the form 

of Liberty and Victory Bonds represent? 

They represent no actual working capital, but 
are a conversion of former subjective wealth of the 
people from money into titles. But they have stimu- 
lated the patriotism in a degree unprecedented in 
our national history and have given a wholesome 
impulse to the national habit of saving. 

127. By what other apt name is Value Capital known? 

By the name of fictitious capital.. 

128. Does the wide diffusion of the holdings of capital 



36 CAPITAL. 

values offer a new criterion for the designation of 
economic systems? 

This may be affirmed. Thus Professor Liefmann 
of Freiburg distinguishes an era of capitalism of 
goods, an era of capitalism of money and one of 
capitalism of Values (Effektenkapitalismus). How- 
ever, in this division the latter systems are not the 
denial of the continuance of the earlier systems, 
but the earlier systems are respectively extended 
into the era of the later and higher systems (barter, 
money, credit, Capital Values). 

129. Was capital used and was it necessary in every stage 

of economy and under every economic system? 

Yes. 

130. Why then do we precisely call our present system, 
and it alone, the capitalistic system? 

Because our present economic system has these 
four characteristics not found, or not so pregnantly 
developed in any of the previous economic systems, 
to wit: 

a) The exclusive subordination of production, in 
its organization as well as in its execution, to the 
interest of profit in money, and not to the interest 
of profit in (the volume of) commodities; 
ib) The paramount importance of the possession of 
wealth for the organizing of production, a condition 
which enables even the less competent (intellec- 
tually) to compete with and crush the financially 
weaker undertaker ; 

c) The dependency of the laborer from wealth, the 
degradation of labor to a factor of production and 
to a factor of profit to the undertaker; 
d The consequent distribution of the yield of pro- 
duction in a manner by which the laborer receives 
a fixed wage while the owners of capital and the un- 
dertaker divide the entire remainder of the yield 
among themselves. 



FOEMS OF PRODUCTIVE CAPITAL. 37 

Article 6. 
FORMS OF PRODUCTIVE CAPITAL. 

131. Mention the chief forms of productive capital. 

Rawstuff s and auxiliaries ; forces operating the 
plants (machines, tools, animals) ; plants, ware- 
houses, docks; meliorations: dykes, dams, irriga- 
tion systems. [Finished wares and money are 
forms of acquisitive capital] 

132. What is standing (fixed) and what is circulating 

capital? 

Fixed and circulating capital respectively denote 
a relation of the capital goods to the duration of the 
productive process. Circulating capital is that which 
enters totally into the product (or in the case of ac- 
quisitive capital that which is exchanged entirely 
for money = shoes for money) ; standing capital 
is that which only gradually is consumed in the pro- 
ductive process. 

133. Give seme examples of fixed and of circulating 
capital. 

In the textile mill, for instance, the standing 
capital is the plant, the ware-houses, the machinery 
and other material consumed only after many pro- 
ductive periods. The circulating capital are the raw- 
stuffs wholly consumed or essentially changed as 
coal, coke, or other forces, raw cotton, silk, etc., and 
the money invested in wages. 

134. What is the supreme interest of the undertaker with 

regard to his productive capital? 

To transform it as rapidly as possible into com- 
modities, and the commodities into money, that is, 
into that form of acquisitive capital which offers the 
widest range of economic independence and of new 
investment in whatever undertaking he pleases. 



38 FORMS OF PRODUCTIVE CAPITAL. 

135. Which has been the most important transmutation 
of forms of capital in history? 

The transformation of circulating capital into 
fixed capital in the case of the displacement of human 
labor by machinery. 

136. How do the various forms of capital rank in point of 

mobility? 

The banker's, trader's, manufacturer's, and far- 
mer's capital. (However, the complex development 
ov value capital has given also to the farmer's capital 
— land and crops — a mobility by speculators in land 
and crops which has given rise to the term of a 
"mobilization of the sail.") 

137. What is a machine? 

A machine is an instrument by which we may 
change the direction and velocity of a given 
motion, (Ampere). 

Or: A machine is a technical instrument of labor 
which forces natural energies and a system of com- 
posed solid bodies (combined instruments) to execute 
movements in mechanical rhythm, leaving man in 
charge of the mere control and general guidance of 
the process, inclusive of a sum of small mechanic 
manipulations (Sehmoller) . 

A machine may also be defined as a mechanical in- 
strument performing the operations of the human 
hand in an accurately calculable and exact manner 
and usually with a velocity beyond human imitation. 
(See also definition in Webster's). 
(The general language has put "tool" and "machine" 
in opposition to each other. By "tool" we understand 
a technical means of work which facilitates and 
accelerates the process of manual operations but in 
the use of which the execution of the work depends 
exclusivly upon the watchful head and hand of the 
worker. The motor generates and regulates the 
power, while the work-machine transmits the power 
upon the economic technical process of work. Both 
belong together. See Schmoller, Grundriss, I). 

138. Mention the economical results of the introduction of 

the machine. 



FORMS OF PRODUCTIVE CAPITAL. 39 

a) Acceleration of the productive process; 

b) Increase of the volume of the product ; 

c) Reduction of the price of product; 

d) Increase of consumption; 

e) Gradually, a reduction of the time of labor. 

139. Mention the chief social consequences of the intro- 
duction of the machine. 

a) Displacement of laborers ; 

b) The factory system ; 

c) The city; 

d) The slum and modern proletariate ; 

e) Woman and child labor; 

f) Impairment and largely disintegration of family 
life; 

g) Injury to character and social dignity of woman- 
hood ; 

h) The detriment to educational and moral standards 
for broad classes of the laboring proletariate. 

("The amount of misery caused by the machine 
of the nineteenth century cannot be represented by 
figures, it is absolutely beyond conception. I think it 
is probable that the nineteenth century was the most 
'pain-fur of all known ages, and that chiefly because 
of the sudden advent of the machine", Chamberlain, 
Foundation or the Nineteenth Century, Vol. II. p. 362. 

140. Was the machine an entire novelty in the 18th and 

19th century? 

By no means. Machines of various nature and 
industries had existed among the Ancients, in the 
milling, pottery, spinning industries, etc. But the 
characteristical mark of the era of industrial re- 
volution is the introduction of the machine on a scale 
unprecedented and in a so multiform a variety as to 
create the most complex system of labor division 
until then thought inconceivable. 

141. Of what is division of labor the result? 

Division of labor is the result of the increasing 
minuteness and specialized cultivation of all human 
activity, and it is always contingent on progress in 
technics and on the increase of capital. Thus the 
Phoenician-Egyptian tool technics had determined 



40 FORMS OF PRODUCTIVE CAPITAL. 

for thousands of years the industrial division of 
labor; advancement of technics in the days of the 
Renaissance had developed the small workshop of 
the Middle Ages, since the 15th century, into the 
manufactories and home industries of southern and 
western Europe. 

142. Mention other factors that have brought about our 

modern division of labor. 

The evolution of our modern and our recent 
means of communication; the aroused economic in- 
stinct and universal greed of profit (since the 15th 
century or before), inventions and discoveries, the 
increasing density of population and the corre- 
sponding increase of the intensity of competition, 
the universal adoption of money, the modern market, 
the exchange (Boerse), modern weights, measures, 
monetary and credit systems. 

143. Sketch the great social and individual results of the 

division of labor. 

The modern division of labor is the great agency 
of the advancement of culture, of greater wealth and 
of a larger and more perfect production. The modern 
state and our entire modern national economics are 
a result of the division of labor. But it also retarded 
the moral and physical development and culture of 
millions of individual laborers and stunted their ca- 
pacities under the slavery at the machine ; the philo- 
sophy of Rousseau and his demand for a return to 
Nature is a protest against the division of labor. 
Schiller, Hoelderlin, Engels and many others deplore 
and protest against the "division of man" and his 
monotonous development. Division of labor has 
crushed the life and happiness of untold thousands 
and has stirred numberless rebellions the greatest 
of which, perhaps, was the Chartist Movement in 
England, from 1836 - 1848, partly an organized re- 
volt against the machine, and was one of the most 
potent creative forces of the modern Socialist move- 
ment in all countries. 

144. What must be done to obviate the baneful consequen- 

ces of the intensive division of labor? 



FORMS OF PRODUCTIVE CAPITAL. 41 

The factory laborer must be given a reasonable 
time of leisure for the cultivation of his home and 
of family life ; the married woman must be restored 
in a greater measure to her home duties, their 
children must be placed under the educational and 
hygienic influences of school and playground; child 
labor must he reduced and must begin at a more 
advanced age; the laborer must be so employed as 
to conceive his labor as a social purpose and an in- 
dividual and social duty; his wage must secure for 
him a livelihood, and a margin of saving for emer- 
gency, sickness and old age, and his work must be 
ennobled by the influences of culture, moral and re- 
ligious practice. '/'Then it will be no longer possible 
for Socialists to assail the division of labor as the 
assassination of the people" (Schmoller, Grundriss 
I. p. 393). 

145. What should be the quantitative relation between 
consumptive and productive capital? 

They should be well balanced. An increase of 
productive as well as consumptive capital is necessa- 
ry in proportion to the increase of population. For, 
consumption capital can be increased only by an in- 
crease of productive capital (a greater demand of 
foodstuffs requires a corresponding increase of cul- 
tivated land, machinery, seeds and labor). The in- 
crease of population is met not merely by an increase 
of consumption goods but by an increase of pro- 
ductive capital. 



CHAPTER VIII. 

ORGANIZATION OF 
PRODUCTION AND GAIN. 

Article 1. 
THE MODERN CAPITALISTIC UNDERTAKING. 

146. Which psycho-economical phenomenon indicates the 

advent of Capitalism? 

The dominance of money as the beginning and 
end of all economic activity. 

147. How would you therefore call the modern under- 
taking? 

The modern undertaking is a money-capitalistic 
enterprise for profit. 

148. With whose capital does the modern undertaker 
operate? 

He operates with his own and others' capital, 
with standing and circulating capital and in most 
instances with others' lalbor. But not every under- 
taker is an employer (for instance the real estate 
undertaker and land speculator). 

149. What is an undertaking? 

An undertaking is an economic enterprise for 
production, or the rendering of services (railways, 
theatres), or of exchange for the purpose of profit. 

150. Is domestic economy in its isolation and without ex- 

change an undertaking? 

No. 

42 



THE MODERN CAPITALISTIC UNDERTAKING. 43 

151. Mention the stages of economic development leading 

up to the modern undertaking. 

Domestic economy — overproduction — regular 
overproduction — regular barter — division of labor 
— regular medium of exchange — social division of 
labor by the development of distinct economic vo- 
cations and estates (Staende) — the merchant — - 
the city — money capitalism — credit — value capi- 
talism (Effectenkapitalismus) . 

152. Was the artisan (Handwerker) of the Middle Ages 

an undertaker? 

Yes, in a broad sense. But he produced only 
for customers on order,. The modern undertaker 
produces not for definite customers, nor on distinct 
order, but for the market, at his risk. In the do- 
mestic economy and in the trader's and artisan's 
undertaking of the Guild of the Middle Ages, the 
demand was known, in the modern undertaking the 
demand is estimated or entirely imaginary. Hence 
risk one of the essential characteristics of the 
modern undertaking. 

(Mutuall insurance companies, state munition 
works, cooperative stores, etc., are not undertakings 
in the capitalistic sense, for they are not for profit.) 

153. Give the chief classes of undertakings. 

a) Undertakings for the regular furnishing of 
services (theatres, newspapers, advertising agencies, 
barbers, etc.) ; 

ib) Undertakings for the regular offering of goods 
of consumption (taverns, livery concerns ; or mixed, 
offering services and commodities: sanatorium^, 
hospitals, burial establishments, hotels) ; 

c) Undertakings for regular exchange of commo- 
dities (the entire merchant trade) ; 

d) Undertakings for transportation of persons and 
goods ; 

e) Undertakings for production ; 

f) Undertakings for credits. 

154. What is the plant of an undertaking? 

The plant of an undertaking (used synonymically 
with "undertaking") is the organization of the enter- 



44 THE MODERN CAPITALISTIC UNDERTAKING. 

prise in its technical and executive totality: factory, 
shop, auxiliary buildings, warehouses, offices, per- 
sonnel and code of rules governing the undertaking. 
"The plant is the technical unit of the undertaking". 

155. What are mixed plants? 

Mixed plants are a complexity of establishments 
mutually complementing each other in the various 
stages of the manufacture of the final product: ore 
mines, coal mines, furnaces, rolling works. No single 
plant is complete and independent, but each is part 
of a technical organism. 

156. What are combined plants? 

Combined plants are complete plants combined 
in one hand or management. 

(The plant — der Betrieb — furnishes goods 
or services, the undertaking yields profits from 
capital. The unity of the plant is a technical one, 
the unity of the undertaking is economic.) 

157. By which stages has the evolution of the present-day 

large plant been accomplished? 

By the stages of House-work (Houswerk, 
home industry) , . W a g e - w o r k ('Lohnwjerk) , 
Handicraft (Handwerk) , Lager-Stock or Sup- 
ply system. 

158. Explain each of these stages. 

House-work = production for home consumption ; 
Wage-work — production for a wage in the house of 
the employer (remnants of which survive in the in- 
stallation induistries such as electrical, plumbing, 
decorating, painting and frescoing) ; 
Handicraft — production with the worker's own tools 
and rawstuff s in the home of the worker for customers 
on order ; 

Lager-system = production by small masters for em- 
ployers or undertakers who sold the products in a 
magazine or lager J house not belonging to the masters. 
This system is the beginning of real great under- 
takings and of centralization. 

159. When does the Lager-system begin? 

This system prevails from the decline of the in- 



THE MODERN CAPITALISTIC UNDERTAKING. 45 

dependent handicrafts until the second half of the 
18th century, and from this time the workers begin 
to be centralized into one shop of the undertaker. 
This latter style of work is the Manufacture system, 
in which manual work is still predominant. In the 
last quarter of the 18th century the Manufactory 
(hand work) is displaced by the Factory (machine 
work) ,in which mechanical work and mechanical 
power are the characteristic features. 

160. What, then, is a Factory? 

A factory is the centralization or the assemblage, 
for purposes of production, in a building, of a larger 
number of laborers who, with the application chiefly 
of machinery and power work hand in hand toward 
the common production of the same commodity, dis- 
tinct partial operations being assigned to the several 
workers. 

161. Is the factory a benefit to society? 

Decidedly so, despite the social ills (later to be 
considered) it has brought in its wake. The factory 
is a social and economic progress for the same reasons 
that made the machine a factor of progresis. Besides, 
factory inspection has made possible a system of 
labor protection and of mass hygiene not to this day 
realized in the numerous small workshops and the 
sweating industry (largely home industry) . 
(v. Sc'hulze-Gaevernitz "Der Grossbetrieb ein sozialer 
Fortsehritt".) 

162. Mention the characteristics, demands or consequences 

of large scale plants and of the factory system in 
general. 

a) Large capital in proportion to the single product ; 

b) Regular sale on open market ; 

c) Distinct forces of management beside the execu- 
tive labor; 

d) The dominance of financial and speculative ability; 

e) Minute division of labor ; 

f ) Intensified system of technics ; 

g) Social and economic contrast between managers 
and workers. 



46 THE MODERN CAPITALISTIC UNDERTAKING. 

(The social-economic characteristic of factory- 
production is quantity, that of the handicraft 
is quality. The gilds of the Middle Ages, and 
the numerous handicrafts surviving to this day!) 

163. Is there such a thing as over-specialization through 
the factory and the consequent intensive division 
of labor? 

Yes. And this excessive ramification has made 
it difficult for the specialist producer to survey the 
market and has often led to over-production in special- 
ized, partial products, or of the whole product in a 
stage of semi-production (f.i., yarns, raw leather, 
with a sinking demand for textiles and leather goods) . 

164. May we speak of a general absorption of small and 
middie-scale plants by the large plant? 

No, neither in industry, nor commerce and not at 
all in agriculture. However the process of absorp- 
tion has been most marked in industry. Nor is it 
desirable that all handicrafts be maintained at the 
sacrifice of superior technics and the sacrifice of 
lower prices, and least of all at the cost of an in- 
supportable competition with foreign producers — 
so long as the discontinuance of a strong and broad 
middle class is not involved. 

165. Do the small concerns in handicrafts seem to be 
doomed? 

No. They 'have received a new lease of life by 
the introduction of technics and power-driven ma- 
chinery. They are much in demand in countries 
with specialized tastes. Some of the most finished 
and most artistic products in textures, in woodwork, 
in carving and engraving are produced in the mo- 
dernized small shops of the handicrafts. The small 
handicraft in many lines of production continues to 
this day the heir of the high standards of the medi- 
aeval gild. 

166. Is the problem of concentration of plants also a social 

problem? 

Decidedly so. Production on a large scale may 
mean a larger consumption by the masses, but the 



THE UNDERTAKER AND HIS FUNCTIONS. 47 

greater issue is the preservation of an economically 
and technically independent class of producers, sellers, 
and farmers, the stamina of a strong middle class. 



Article 2. 
THE UNDERTAKER AND HIS FUNCTIONS. 



167. Which are the functions of the undertaker? 

a) The undertaker bears the economical and 
technical risks ; 

b) He organizes and directs the undertaking and 
its plants. 

The quality of undertaker is shared by the 
collective bodies of directors or ministerial colleges 
employed by the proprietor . undertaker in such great 
undertakings as those of the U. S. Steel Corporation, 
'the large packing concerns, the Krupp, Siemens, 
and others. The chief directors of such concerns, 
really employees of the undertaker, are functionally 
undertakers, legally they are not. 

168. What are the stockholders in a big undertaking? 

Legally they are undertakers, functionally most 
of them are not. (The 'mobilization of the capital 
of an undertaking, in the form of transferable 
shares, stocks, bonds, has been styled the dis-per- 
sonification of capital) . 



48 THE LABOR CONTRACT. 

Article 3. 
THE LABOR CONTRACT. 



169- What does Contract essentially imply? 

Freedom of social and economic action and, in 
most cases, the existence of the sanction of the 
state enforcing the contract. 

170. What is the labor contract? 

A bilateral obligatory contract by which labor 
is promised in consideration of a wage or equivalent 
consideration. 

171. What is the object of the labor contract? 

The performance of labor on the one hand and 
the payment of a remuneration on the other. 

172. Does the employer, in the contract, acquire the person, 

the capacity, the single performances (Arbeits- 
leistungen), the result of labor (the product) or the 
total exchange value of this product? 

The employer by the labor contract acquires 
the legal title to the performance of certain work 
only and the profits he may reap from its product, 
the laborer acquires a title to the stipulated wage. 
The labor contract as it obtains today does not con- 
stitute a legal partnership between employer and 
employee as to the profits of the undertaking. 

173. What would such a partnership contract, if entered 
into, entail? 

It would entail irksome hindrance of the initia- 
tive and speculative daring of the employer ; partner- 
ship of risk and loss for the laborer, and the very 
difficult problem of the apportionment of the net 
volume of profit to undertaker, officials, and laborers, 
to mental and executive (labor) ability. 

174. Is the labor contract a purchase contract? 

By no means, for labor does never represent a 



THE LABOR CONTRACT. 49 

commodity but is a category inseparably connected 
with the laborer. 

(It was the fateful mistake on the part of the 
classical economists to rate labor with commodities, 
and Brentano correctly argues that, if labor is truly 
a thing, a commodity, then our modern labor re- 
lationship is truly wage - slavery, as Socialists de- 
clare. And, again, if labor is a commodity, then the 
price of labor is determined only by supply and de- 
mand. The fatal consequence of this social heresy 
of classical economy is the elimination of the ethical 
and social relations between laborer and employer: 
the dis-personincation of labor). 

175. State the doctrine of Smith and Rieardo on the wage 

of labor. 

According to Smith and Rieardo labor is the 
measure of the exchange value of goods. Labor 
determines the value of goods, their natural price. 
A thing is valued according to the measure of labor 
its production would involve for one. This labor has 
its natural price which is equal to the price or the 
labor required to reproduce the laborer's strength, 
to found and rear a family- The market price of 
labor determined by supply and demand, oscillates 
about the natural price. It cannot long rise above 
the natural price for if it does the laborers will show 
a more rapid increase in population which will re- 
sult fo a consequent oversupply of labor, and the 
price of labor will fall. Nor can labor long continue 
under the natural price, for in that case laborers 
will show an increase of mortality, sickness and 
general misery, there will be a scarcity of labor and 
the price of labor will rise in consequence of this 
and of a greater demand. This 'law was called by 
Lasalle the "iron law of wages." 

176. In what relation does the iron law of wages stand to 

the Malthusian theory? 

It confirms the Malthusian theory of pessimism 
and takes the inevitable misery to the working class, 
resulting from overpopulation, for granted. 

177. How do you refute the iron law of wages? 

There are some laborers to whom the facts of 



50 THE LABOR CONTRACT. 

the law apply but not on account of the inherent 
correctness of the law. For the majority of laborers 
these facts should be considered : 

a) Not all laborers have the same wages. 

b) The wage has oscillations even among laborers 
of the same group. 

c) The minimum limit, ispoken of in the iron wage 
law, obtains mostly for married laborers, and not 

d) Even the minimum for the married laborer is 
for all of them. 

d) Even the minimum for the married laborer is 
subject to change and has steadily risen in the past 
century. 

e) Lalhor organizations, improvements in , thje 
methods of production and the economic conduct of 
the laboring class itself will neutralize and has set 
aside the law. 

f) The movemlfentsi of! population (increase of 
marriages and offspring or the decrease of either) 
as a consequence of higher or lower wages are so 
slow and gradual that their effects can easily be com- 
pensated by changes in the methods of production. 

178. What is the Wage Fund theory? 

The wage fund theory is the doctrine of a num- 
ber of the classical economists according to which, 
the capital of undertakers being of a given fixed 
quantity at a given time, the wages of the laborers 
will be definitely limited by this quantity of capital, 
only a portion of which, however, can be used as 
wages. The wage available from this fund for each 
worker at a given time is furthermore determined 
by the number of laborers employed. This wage 
fund is capable of increase through saving and 
through an increase of wealth, and only, inasmuch as 
such growth of the fund takes place is there possible 
an increase of the wage, provided the laborers them- 
selves have not increased faster than the fund. Any 
increase of wages granted before an increase of the 
fund will result in the falling off of wages of other 
laborers dependent on the fund. 

179. What may be said to refute the wage fund theory? 

a) It cannot be said or shown that any given 
or fixed portion of capital is set aside, or is only and 



THE LABOR CONTRACT. 51 

exclusively available for wages because all units of 
the national wealth can be made available for pro- 
duction by way of credit; 

b) the quantity of labor and consequently the wage 
quantity of the individual undertaking is not fixed 
and, moreover, is dependant on the technical com- 
position of capital in general and of the capital of 
each undertaking (f.L, instead of 25 type-setters in 
a printing office install a few linotypes operated by 
two, three men) ; 

c) the final payment of wages is not made from the 
capital of the undertakers but from the income of 
the consumers. There is, therefore, no fixed quan- 
titative relation between capital and necessary limit 
of wages. 

180. Is there net some truth in the wage fund theory? 

Yles. And it is : While credit may, indeed, in- 
crease the available fund of wages, the amount of cre- 
dit will depend on the quantity of capital seeking 
credit, and on the agencies of credit — the banks 
and other credit institutions. Hence there is a certain 
limit to the possible wages at a given time, and the 
limit is determined by the limitations of capital and 
its possible uses at a given moment. 

181. In what other way is there a limit to possible wages? 

By the fact that all real income is limited by 
the supply of goods and by the productive organiza- 
tion of a national economy. The total of all real 
partial incomes is only equal to the total national 
income;. This national income is divided as wages, 
rent, interest, and profit according to the conditions 
of the market, the prevailing rates of rent and in- 
terest. 

182. WMcn moments constitute the characteristic posi- 

tion of the laborer in our capitalistic scheme of 
economy? 

a) Not the (often only alleged) fact that the 
laborer is limited to a minimum of standard living 
or a minimum limit of wages. 

b) But, by the obligation or hindrance of the person 
of the laborer through the labor contract. 



52 THE LABOR CONTRACT. 

c) The uncertainty of employment and the conse- 
quent uncertainty of labor income. 

183. Can the wage of the laborer be appreciably increased 

beyond its present maximum, or average, for that 
matter? 

No; Not if the increase is to be made at the 
cost of the rest of society. Since all real incomes 
must be carved out of the total national real income 
(the quantity of goods produced) the only increase 
that will be felt as a benefit and that will endure is 
an increase resulting from a greater total national 
product. Especially in the present crisis of the world 
and of the United States in particular, an increase 
of national productivity alone will be a guarantee 
against national economic and political ruin. 

184. Why is the labor contract not a contract of rent or 

lease? 

Because in the rent or lease the object of the 
contract enters, in its uses, into the possession of 
the renter, but must be returned unconsumed. The 
capacity of labor, however, and the performance 
flowing therefrom, are consumed and must be 
daily reconstructed or restored for a renewed use. 

Besides the use of the labor capacity and its 
single performances are made not by the employer 
but by the laborer himself. (The labor contract is, 
therefore, a unique contract with mutual obligations. 
'The elements of labor may be said to be three : physi- 
cal and intellectual and moral force — sense of 
duty.) 

185. Is there an absolutely secure criterion for a just wage? 

No. The problem of a just compensation of 
labor is insolvaible on account of the incommensur- 
ability of labor and wage, of labor and commodities ; 
on account of the unknowable proportions in which 
capital and labor contribute to the productive pro- 
cess ; on account of the difference in quality and 
quantity of the labor of the same class of workmen 
employed on the same kind of labor; on account of 
the incommensurability of mental and directive and 
physical and executive labor. 



THE LABOR CONTRACT. 53 

186. Mention the principal criteria that have been put 
forward as attempts to solve the problem of the 
just wage, and offer criticism. 

a) The theory of the prevailing rate of wages, 
which is ambiguous, and may mean the lowest or 
the highest rates most frequently prevailing. The 
criterion presumes to raise a fact (the prevailing 
rate) to the dignity of right (the just wage). 

b) The theory of value-equivalence, i.e., an equiva- 
lence between the labor and the remuneration. But 
this equivalence it is impossible to determine. Nor 
is it possible to ascertain whether or not the net gain 
of the employer (his profit) is equal to the net gain 
of the 1 aborer (the net difference of advantage 
gained at the cost of the inconveniencec involved in 
his expenditure of time and energy.) 

c) The criterion of free contract, be it ever so per- 
fect, can never define the just equation between 
labor and wage ; but the freedom of contract mostly 
does not exist. 

d) The mediaeval criterion of the "justum pretium" 
is not applicable to our atomistic state of society 
and economy; for the estates of the Middle Ages 
and their corresponding standards of life are not re- 
cognized today. The labor-value and use-quality of 
goods were the criteria of their value, and labor- 
value in its turn was measured by the standard of 
living to which each member of an estate was en- 
titled. Hence the social needs of the laborer became 
the gauge of value of his labor, irrespectively of the 
intrinsic value thereof. But class needs cannot 
function and cannot be considered as a measure of 
equivalence of exchange, or a common denominator 
of wage and labor, for if they did, the adoption of 
this criterion would necessarily be based on an ethical 
consideration, the personal dignity of the laborer. 

e) The theory of labor productivity, in virtue of 
which productivity the entire product of laJbor be- 
longs to the laborer. This theory ignores the legi- 
timacy of rent and capital for which there is a strong 
presumption. Inasmuch, besides, as this theory is 
Abased on the labor-value theory, it is altogether 
wrong, because the value of product is not measured 
ultimately by labor, but by utility and scarcity. 



54 TRADE AGREEMENTS. 

187. What, then, is a criterion of a just wage? 

Such a wage as will insure to the laborer a 
minimum of physical and decent cultural subsistence 
in accordance with his dignity as a person. This 
wage includes the necessaries of life, opportunity 
of saving for emergency, sickness, old age, the rea- 
sonable enjoyment of amusements, the perfection 
of his moral, religious, and cultural personality. 

188. Who is to pay this living wage? 

In our present organization not the State, but 
the employer who is the economic functionary of so- 
ciety as wage payer. 

189. Is the living wage a fully just wage? 

Not necessarily. It very likely is for the in- 
efficient worker whose inefficiency is not the result 
of a moral defect of his own. 

190. Which factors constitute a claim to a higher than 
a living wage? 

Unusual sacrifice in the performance of labor, 
risk, unusual efforts, cost of preparation, or disagree- 
ableness of the work to be performed. (See es- 
pecially Distributive Justice, by Dr. John Ryan). 



Article 4. 

LABOR TARIFF CONTRACTS OR 
TRADE AGREEMENTS. 



191. What is a labor tariff contract? 

A labor tariff contract is a contract concluded 
between the organizations of employers and the or- 
ganizations of the employees for the purpose of es- 
tablishing obligatory norms or tariffs according to 
which future labor contracts, collective or individual, 
shall be made, within a period of time specified in the 
contract. The labor tariff contract settles the sched- 



TRADE AGREEMENTS. 55 

ule of wages for a longer period and serves as a 
basis for individual contracts. 

192. What are the purposes of the labor tariff contract? 

Stabilization of the labor market ; of labor con- 
ditions; to provide a secure basis for contracts on 
the part of manufacturers or builders and underta- 
kers in general; to secure industrial peace. 

193. Does this kind of contract bind the laborer imme- 
diately? 

No ; for the labor tariff contract is not a contract 
to yield labor, but a contract determining the content 
of the labor contract. (The labor tariff contract is 
a new juristical category, in England it has won 
great importance, so in Germany and France and 
Australia.) 

194. State and refute objections to trade agreements. 

a) They coerce the laborer and subject him to the 
labor syndicate. — This may be true, but it is a 
better condition than the individual labor contract 
would insure. 

b) They equalize or standardize unduly both to the 
disadvantage of the employer and employee. — They 
do. But this disadvantage is hardly avoided in the 
common group contract, and it is amply compensated 
for by the advantage of wage stabilization and in- 
dustrial peace. Besides, it settles at least the problem 
of a minimum wage and of a minimum labor perfor- 
mance,. 

c) The undertaker is handicapped, by trade agree- 
ments, to meet foreign competition possibly not so 
hampered. — This disadvantage can be obviated 
by elasticity clauses and by international agreements 
on labor legislation, proposed as early as 1890 by 
former Emperor WiHiam II. 

195. What are essential parts of a trade agreement? 

a) A preamble, defining the parties to the 
agreement, its scope, duration, and purpose; 

b) A legislative code, the working rules ; these rules 
sometimes cover the minutest details of conditions 
time, and payment of work; 

c) A code defining the mode of interpretation; 



56 TRADE AGREEMENTS. 

d) An executive code, defining the method and means 
of enforcement. (However, not all trade agree- 
ments have all these parts). 

196. Are trade agreements enforceable at law in the 
United States? 

No, at least no definite machinery exists, or 
has been generally accepted, for their enforcement. 
Enforcement largely rests with joint boards or stan- 
ding commitees composed of members of either 
party. 

1^7. What are trade agreements at best and what is their 
tendency and import for future development of the 
labor movement? 

Trade agreements are not peace, but a mere 
truce. But they are steps toward a fuller control 
of industries by labor. ("They are an entering 
wedge toward industrial democracy and abolition of 
the profits system. . . This is the larger aspect of 
unionism and in this sense collective bargaining is 
a solution of the labor problem", Hoxie, Trade Un- 
ionism in the U.S.) 



CHAPTER IX. 

FREE COMPETlTIOi 



198- Which are the three fundamental elements of our 
present economic organization? 

Division of labor, private property, and freedom 
of contract. 

199. What is free competition? 

Free competition is that system or principle in 
economic life by which individuals or groups are 
entitled and prompted to seek their own economic 
benefit by producing, selling, and buying when, how 
much, and at what prices they choose, in emulation 
with, and in opposition to, othersi. 

200. Mention some of the economic-technical consequences 

of free competition. 

a) An increase and greater variation of pro- 
duction ; 

b) A reduction and equalization of prices ; 

c) An intensified division of labor and a greater 
development of technics ; 

d) An extension of the credit system on account of 
a more various and extended use of capital and in- 
vestment ; 

e) An increase of production, greater consumption, 
and a rise in the physical and cultural standard of 
living ; 

57 

5 



58 FREE COMPETITION. 

On the other hand, free competition results also in: 

Greater risks to individual undertakings as a 
consequence of the uncertainty of the market and 
erroneous speculations ; 

The disappearance or crippling of undertakings 
with lesser power of resistance to the fall of prices 
or panic, resulting from overproduction ; 

Unnecessary, extravagant, and harmful expen- 
diture for advertising, deterioration and adulteration 
of products in the competitive struggle; 

Production of commodities not the best from 
a national-econmoic viewpoint, but such production 
as promises the greatest margin of gain. 

201. Mention some social effects of free competition. 

a) An incentive to initiative, personal respon- 
sibility, thrift, ambition to labor and to invent. 
b) Disregard for the person and family and other 
interests of the laborer, child and woman labor, in- 
security of labor or unemployment on a large scale 
(in consequence of industrial speculative errors, 
crises, and panics.) 

202. State the general classes of limitation of free compe- 

tition. 

They are: natural, social, legal. 

203. Mention some limitations of each of these three 
classes. 

Natural limitations : the place of production, 
supply of raw stuffs, transportation, the size and 
natural and technical structure of the population, etc. 
Social : structure and supply and extent of mar- 
kets,, social intercourse, custom, mores (prohibition, 
clean films, clean literature and theatres and a de- 
mand for them), public opinion, coalition of compe- 
ting groups — labor unions and employers' asso- 
ciations, and monopolies- 
Legal limitations: state monopolies, patents, 
and copyrights, tariffs, labor laws and factory legis- 
lation, usury laws, contract laws, and price tariffs 
established by public authorities. 

204. What is a monopoly? 

A monopoly is such a position of advantage in 



FREE COMPETITION. 59 

the market as will render a producer or a buyer or 
a seller immune from the competition of others. 

205. Which factors in the world of competition are conspi- 
cuous and socially and economically most important 
for the monopolistic tendencies? 

Labor organizations and employers' or under- 
takers' associations. 



CHAPTER X. 



LABOR UNIONS AND UNIONISM. 

Article 1. 
WHAT UNIONS ARE. 

206. What is a labor or trade union? 

A labor union is a "continuous association of 
wage-earners for the purpose of maintaining or im- 
proving the conditions of their employment" (Webb) . 

207. What is collective bargaining? 

Collective bargaining is a mode of fixing the 
terms of employment by means of bargaining between 
an organized body of employees and an employer, 
usually acting through duly authorized agents- 
(Hoxie.) 

208. What does Unionism in general denote? 

Unionism is not only the collective term for 
labor organizations, but denotes class consciousness, 
a complex of social and economic ideals, purposes 
and is by no means a homogeneous category. Union- 
ism has not a single, common genesis, and is ex- 
tremely various, contradictory, at war with the 
groups it includes, functionally and stueturally di- 
versified, essentially an opportunistic phenomenon. 
It is one of the most complex, heterogeneous and 
protean of modern social phenomena. 

209. In what manner may we arrive at a sound and secure 
understanding of what unionism is? 

60 



WHAT UNIONS ARE. 61 



By the study of its distinct types, which are 
either of a structural or of a functional nature, or 
'both. The structural types include the craft 
union, i.e., an organization of wageworkers in a single 
occupation (railroad engineers.. Secondly, the 
crafts union, i.e., a federation of unions of differ- 
ent crafts or industries (city, state, and national), 
fi., the Columbus Federation of Labor, Ohio, U. S. 
etc. (These structural types appear under many 
different titles such as trades councils, assemblies, 
central labor councils, central federated unions, etc.)- 
Third, the industrial union, based not on the 
craft but the industry and uniting into one organic 
group all workers engaged in turning out one definite 
product, or a series of closely related products, for 
instance all the workers in the brewing trade, as 
brewers, maltsters, bottlers, packers (the local or 
national industrial union of brewers includes all the 
groups of workers mentioned, in city, or nation). 
Fourthly, the labor union, i.e., the organization 
of all workers regardless of craft or industrial di- 
vision, and it exists in locail, district or larger di- 
visions. 

210. Which functional types of unions do we distin- 
guish in unionism? 

These four : (a) the business union, which 
is more trade-conscious than Class-conscious, and 
has the trade interests of wage, time, and Other work 
conditions in view- It is conservative, recognizes 
capitalism, contract, uses unionism mainly as a bar- 
gaining institution. It is temperate, economic, well 
disciplined, but strikes when expedient (well repre- 
sented in the railroad brotherhoods). 

(lb) The uplift union, idealistic in viewpoint, 
conservative, interested in moral, intellectual social 
uplift of worker, his leisure for culture, better 
wages, mutual insurance, leaning toward cooperative 
and profit sharing enterprises (Knights of Labor . 
The uplift union and the business union a^e 
probably two varieties of one type more comprehen- 
sive than either variety). 

(c) The revolutionary union, radical, 



62 WHAT UNIONS ARE. 

class-conscious, bargaining and other helps are only 
makeshifts, the goal is Socialism, or its aim is anar- 
chism (the former in the Western Federation of 
miners, the latter in the I. W. W. and in syndicalist 
unionism) . 

(d) The predatory union, either conserva- 
tive or radical, trade- or class-conscious, secret and 
quick in its operations to attain its immediate ends 
by good or bad means, regardless of law or moral, 
and generally without principles or character (sub- 
ddstinguished as hold-up union and guerilla union- 
ism, the latter never favoring employers, unlike the 
former, and ruthless, violent, cannot be bought off 
(represented in Bridge and Structural Iron Workers. 
Also dependent unions, sometimes started by 
employers to secure the benefits of real unions, to 
wit, the union label, sympathy, and direct financial 
assistance) . 

211. Do these types respond exclusively to the unions 

named after them? 

No, but the types predicated of the respective 
unions represent the dominating force and character- 
istic. A union, indeed, may develop a variety of 
attitudes corresponding to all these types. But the 
real significance of unionism as a social phenomenon 
and problem is functional, not structural. "The 
functional type is a specific case of group psychology. 
It is a social interpretation and remedial program 
held by a group of wage workers. The structural 
type is one organic form in which it may clothe 
itself." Hoxie. 

212. Do the union programs reflect the pure union type? 

Rarely so ; and for this reason the multiple-type 
nature of unions has too often escaped notice. 
(Unionism and its forms are not a finished product 
but a social phenomenon in constant flux, dynamic. 
Besides, unions are pragmatic: they continually 
adapt themselves and their policies to new condi- 
tions, or new members affect these external policies, 
while the original union type persists-) 



WHAT UNIONS ARE. 63 

213. What does it mean that unionism is nonunitary in 

This means that the genesis of unionism cannot 
be explained momistically, i.e., through identical 
causes, but thrcguh different causes, and that the 
functional differences in unions are the result of di- 
verse combinations of environmental, racial, temper- 
amental and traditional elements urging the workers 
to group action. 

[Note. The union to be successful and enduring 
must be autocratic. "As a democracy no union 
would last six minutes", says one union leader. 
Strong officers at the top are needed. Sometimes 
they fall victims to prosperity and to the Mahog- 
any" table. This is a great weakness of unionism — 
"it dies at the top" Hoxie.] 

214. What or who is the walking delegate of a union? 

The general executive offiicer of the local, 
elected by popular vote, legally incompetent to act 
otherwise than on the union's responsibility ; he deal's 
with the employer for the union, controls the enforce- 
ment of the union rules on either side, sees to the 
financial, membership, attendance and other interests 
of the union and is a harmless officer, though he may 
at times become an irrepressible autocrat, not 
easily removed if he has succeeded in making himself 
indispensable to the worker by his aptitude, his 
business knowledge, his persuasive power, his ac- 
quaintance with the labor market and the employers. 
He is the '"ward boss" of the union. 

215- What is the trade union's program? 

Negatively it is not merely an economic one in- 
cluding the standard of living ; positively, it includes 
the whole social philosophy or theory of the worker, 
his conceptual world. But it does not include the wel- 
fare or even better standards of living or wages of 
the whole working class, but only of the group. 
(Uniformity of wage, a standard rate of wages, at 
least as a minimum — standardization downward, 
or standardization of the slowest worker,, with 
speeders eliminated — are the chief principles back 
of the collective bargain). 



64 MILITANCY OF UNIONISM. 

Article 2. 
MILITANCY OF UNIONISM. 

216. What is a strike? 

A strike is the simultaneous cessation of labor on 
the part of a body of laborers for the purpose of 
enforcing the acceptance of a certain demand or of 
demands upon the employer. 

217. What is a lockout? 

A lockout is the action of the employer exclud- 
ing his employees from the shop or from work therein 
for the purpose of reducing recalcitrant employees 
to subjection or, generally, to enforce the employer's 
terms upon 'them. 

218. Are strikes morally justifiable? 

Yes, as much so as unions themselves., provided 
the strike is used as the means of last resort to compel 
compliance of the employer with a fair demand of the 
employees;. The strike, however, appears to be 
morally unjustifiable in most cases affecting public 
utilities, public safety of property and person (fire- 
men's, policemen's and railroad and postmen's 
strike): But it cannot be said that a strike of em- 
ployees on public utilities or necessaries would be 
morally unjust under every circumstance. 

The conditions of a just strike may be summed 
up as follows: 

(a) that there be a just grievance; 

(b) that other means of settlement and concilia- 
tion have failed; 

(c) that there be no violence nor destruction of 
property ; 

('d)that the benefits to be derived from the 
strike exceed the damage and suffering ensuing from 
the same. 

219. What is a boycott? 

A boycott is the action of individuals or usually 



MILITANCY OF UNIONISM. 65 

organized groups by which they attempt to bring an 
employer or other undertaker to terms, or punish 
him by excluding him from the market of materials, 
or by withholding, or inducing others to withhold, 
business relations from him. — Its moral lieitness 
is to be judged in the same manner as that of the 
strike. 

220. Why may the boycott prove a more formidable weapon 

than the strike? 

Because it attacks the employer or the under- 
taker at his weakest point. While in the strike the 
attacking party, the laborers, are only the holders 
of specific "goods", their labor, and the employer, 
the possessor of ready money (easily convertible into 
other goods), in the boycott the conditions are 
reversed: the employer being in possession of un- 
salable goods and the boycotters in possession of 
ready money, easily convertible into goods elsewhere. 

221. What is Sabotage? 

Sabotage is the destructive action of the workers 
applied to the processes of industry, affecting the 
quantity and distribution of the product. 

222. What is an injunction? 

An injunction is an order issuing from a court 
of equity for the purpose of preventing injury or of 
preserving the status quo until the final determina- 
tion of rights. — It is an extraordinary remedy of 
law and is mostly invoked in favor of property rights 
whose construction or assumption is in the discre- 
tion of the court. 

223. What do injunctions cover? 

Injunctions do or may cover almost anything 
that courts may consider a possible irreparable 
violation of property. Violation of injunction is con- 
tempt of court entailing fine or imprisonment. 

225. Is the boycott legal when enacted by a union? 

Yes, unless the court declares it to be in re- 
straint of trade. 

226. What is the secondary boycott, and is that lawful? 

The secondary boycott is the boycott of the 



66 MILITANCY OF UNIONISM. 

merchant who sells the employer's goods, and it is 
in most cases unjust. 

'In the case the boycott is directed not against 
their own employer, but another employer or un- 
dertaker w*ho buys or sells the other's products or 
rawstuffs, the boycott must be judged by the same 
canons by which the sympathetic strike is judged. 
A purely sympathetic strike is a strike declared 
against an employer against whom there exist no 
grievances, but against whom the strike is declared 
merely for the purpose of supporting a strike against 
another employer bv other laborers. If the original 
strike is just, and if the victim of the sympathetic 
strike through his business relations with the victim 
of the first strike supports the unjust employer in 
his unfair treatment of the laborers, and the sympa- 
thetic strike seems reasonably to be the only means 
of redress, then the purely sympathetic strike may 
under verv urgent circumstances be justifiable. The 
same holds of the secondary boycott which should 
not be resorted to except in very extreme cases. 

227. What do von know of the general relation of our pres- 

ent-day law to labor? 

Our present law is out of joint with the new eco- 
nomic conditions, is especially out of harmony with 
the social position occupied by labor and capital re- 
spectively, and has a tendency to be unfair to the 
former and unduly favorable to the latter. 

228. How do you explain this disharmony of law and the 
social position of labor and capital? 

Our present law is based on the absolutistic con- 
cept of society represented by Ouesnay and the en- 
tire phvsiocratic and the individualistic school of 
Adam Smith. According to their absolutistic con- 
cept there exists a fixed social constitution, fixed so- 
cial relationship and fixed positive norms of right 
and justice, based upon a natural order conferring the 
natural and inalienable rights of property, individual 
liberty, free economic competition and freedom of 
contract. This social concept, social philosophy, a 
product of the 18th century, was the reaction follow- 



MILITANCY OF UNIONISM. 67 

ing the era of economic and personal restriction and 
was legitimate and rational at its time. The law 
which was framed upon the social philosophy was in 
harmony with the conditions until the errors of this 
social philosophy of natural right, and the dishar- 
mony resulting from economic freedom were revealed 
in the course of the industrial revolution whose begin- 
nings were contemporaneous with the origin of this 
philosophy and its corresponding law. The operation 
of free contract and of free competition resulted in 
social and economic inequalities with which the law 
was no longer in accord and became false and untrue. 
In England the law was first framed upon this new 
philosophy of the 18th century and thence it was 
translated to America and to the continent. The 
rights which the law chiefly guarantees and defends 
are the rights of property and equal protection of the 
law, individualistically conceived and interpreted, 
that is, conceived with no regard for society and 
its welfare. The social philosophy at the bottom of 
our law assumes the existence of unchangeable social 
rights ; it assumes the individual as the basis and 
the center of society, it knows no society other than 
a mere aggregation of individuals and no social wel- 
fare apart from individual welfare. It assumes that 
what is right once must be right always, and is es- 
sentially different from the evolutionary concept of 
society which assumes a development of social con- 
stitution, changing social relationships and relative 
standards of social right and justice. The evolution- 
ary concept of society and of law is, contrarily to 
the absolutistical, teleological (purposive), inasmuch 
as rights and law exist to meet changing social con- 
ditions, needs, and circumstances. Accordingly, the 
absolutistical existing law inclines to protect private 
property more than personal and social rights. 

229. What are the principles to be observed by the State 
in changing its laws to right economic wrong and to 
bring the law into harmony with actual social con- 
ditions? 

(a) The transition from old to new law must be 
gradual, successive, and continuity with the past, 



68 MILITANCY OF UNIONISM. 

must not be interrupted (the institution of property 
must not be abolished, in order to construe a new 
and more just distribution, and a juster property 
law.) 

(b) The change must not be made by arbitrary 
compulsion but with the cooperation and assent of 
the people. 

(c) The change must be accompanied by a co- 
operation of its beneficiaries, who are to render them- 
selves worthy of it by their own personal effort. 

(d) The change, inasmuch as it affects prop- 
erty, must affect its victims on an equal basis, and 
not arbitrarily. 

230. Mention some of the means by which the State can 

effect a gradual and more just distribution of prop- 
erty and income. 

By a system of education by which capacity for 
industrial success is distributed more equally; 

By measures insuring a more normal family life 
to the lower classes (factory, building and sanitary 
laws) ; 

By a juster and fuller legal recognition of organ- 
ized labor, as against organized capital and employ- 
ers; 

By a system of taxation weighing more upon 
property than labor; 

By a rational and progressive income and inherit- 
ance tax, preventing an undue accumulation of wealth 
while not stifling the spirit of enterprise; 

By a stricter legislation against unfair dealing 
and profits; 

By a rational policy of land reform and public 
ownership of land and public sale to eliminate land 
speculation ; 

By a restriction of the size of large land hold- 
ings; 

By favoring the smaller and weaker producers in 
the allotment and placing of State orders for com- 
modities and many other means. 

231. Give a sketch and data of import of the International 
Workers of the World. 

Launched in 1905 as a protest to craft unionism 



MILITANCY OF UNIONISM. 69 

and the conservatism of the American Federation of 
Labor, and under the impulse imparted by the cruel- 
ties of capitalism in the Colorado Cripple Creek strike 
of 1903, the I. W. W., a Utopian, revolutionary, direct 
actionist, largely proletarian organization, never at- 
taining a respectable membership, hardly over an an- 
nual average of 6,000, a loose, ill-connected federation 
of locals, with internal dissension of members and 
with centrifugal tendencies of control, with no organic 
unity, very miserable financial resources, and these 
ill-managed by the locals and scandalously and fre- 
quently stolen by the secretaries, given to hero wor- 
ship, defiant of law, proud of imprisonment, honey- 
combed with secret committees and spies from their 
own ranks, partly syndicalist, bent on the violent 
overthrow of the capitalist order, industrial unionism 
since 1908 in bitter conflict with revolutionary syndi- 
calism in the organization itself, the latter being for 
decentralization, the former for central control, never 
growing in strength of organization, spasmodic in 
action, with no hold on its membership, discredited 
before the public, with no attraction to the American 
workman who is practical and wants immediate re- 
sults — seems not to be the terror which it has been 
represented to be in the press and in literature. 



Article 3. 

SCIENTIFIC MANAGEMENT. 

232. Describe the general scheme and purpose underlying 
the various systems of "scientific management." 

"Scientific management" is, theoretically, "an at- 
tempt through accurate industrial analysis to dis- 
cover and put into operation the objective facts and 
laws which underlie efficiency in production. In its 



70 SCIENTIFIC MANAGEMENT. 

broadest and best application it attempts through 
this process of analysis to determine the best location 
and structure of the shop for the particular manu- 
facture designed; the most efficient processes and 
methods of production in general and in detail ; the 
material, organic and human arrangements and rela- 
tionships best suited to further the productive pro- 
cess; the most effective character, arrangement and 
uses of the machinery, tools and materials employed ; 
the methods of selection and training of the workmen 
and managerial force most conducive to efficiency; 
the character and amount of work which can and 
ought to be performed by each member of the labor 
and managerial force; the payment to be awarded 
each individual in the interests of efficiency and prac- 
tice; and in general it aims to discover all the mate- 
rial, organic and human qualities, arrangements and 
relationships which will result in greatest output and 
lowest cost" and "the principal and distinctive device 
by which scientific management attempts thus to dis- 
cover and put into operation the objective facts and 
laws of industrial efficiency is time and motion study." 
(Hoxie.) 

233. State some of the reasons why unionism is opposed 
to scientific management. 

Because scientific management in the unions' 
opinion, 

(a) Aims at increase of profits, not wages ; 

(b) It tends to industrial autocracy; 

(c) It is a cunningly devised and concealed ef- 
fort at speeding up and sweating; 

(d) It destroys the craft by over-specialization ; 

(e) It is destructive of continuity of labor con- 
ditions and of employment; 

(f) It is incompatible with collective bargain- 
ing; 

(g) It is essentially dynamic while unionism 
and the labor agreement are static in their tendencies 
and are for the maintenance of the status quo in in- 
dustry, and it is intrinsically opposed to the union 
principle of standardization, downward of efficiency 
and upward of wages. 



SCIENTIFIC MANAGEMENT. 71 

234. Does scientific management accomplish all it prom- 
ises? 

No. But it has decidedly added to productive 
efficiency despite its topheaviness, that is, despite the 
managerial apparatus necessary to keep it in oper- 
ation on scientific principles. Nor is it entirely scien- 
tific in the sense that time and motion study ascer- 
tain the objective scientific facts covering the amount 
of work a person can be scientifically shown to be 
able to do, because this time and motion study leaves 
out of the calculation the very important elements 
of human will and judgment which vitally affects the 
results of that study (for instance, the severe or 
lenient attitude of the employer or the time-study 
man, the hostile or benevolent attitude of the worker ; 
the degree to which the time-study has been carried ; 
care, recklessness, atmospheric, mental, physical con- 
ditions of the student and the time-study man, etc.) 
Therefore, time-study may be scientific in its techni- 
cal and mechanical aspects, but hardly so when it 
transcends these spheres and leaps over to the psycho- 
physical human sphere. 

235. Is scientific management applied to any considerable 
extent in modern enterprise? 

Yes, and it has offered valuable suggestions 
which the industrial world cannot well ignore. It has 
been, espeiciiailly in its more purely psychological func- 
tional capacity and responsiveness in the worker to 
specific tasks, especially such as require quickness 
of apprehension, combination, time sense, space sense 
and decision, applied in the interest of telephone, 
steamship navigation, electric railway service, avia- 
tion. See also Hugo Muensterberg, Psychology and 
Industrial Efficiency. 



72 MEDIAEVAL GILDS. 

Article 4. 
MEDIAEVAL GJLDS. 

236. What do you know of the Mediaeval gilds? 

The mediaeval gilds were either exclusively relig- 
ious or charitable, mutually protective, or political, 
or economic brotherhoods or associations, sometimes 
powerful combinations of craftsmen and merchants, 
endowed not infrequently with public administrative 
powers, enjoying certain trade and other privileges 
and in the case of the craft and the merchant gilds, 
were the chief agencies of economic progress and 
culture and the dominant factor in the public affairs 
of mediaeval cities. 

237. Which gilds are of economic relevance? 

The craft and merchant gilds (geldan, the fee of 
membership, or gield, gildi, kelt, a sacrificial drink- 
ing feast connected with the gild), also Zunft 
(Zusammenkunft, or the opposite of Ungezunft — 
disorder, whereas the Zunft represented order) which 
prevailed extensively in England and Germany, Italy, 
Spain, France, Belgium and Holland and in Scandi- 
navia. (However, all the trades, even professors and 
pupils, physicians and grave diggers, scavengers and 
scholars were united in these organizations of the 
gilds). The industrial and merchant gilds were 
the associations of independent artisans and mer- 
chants. 

238. WheR do economic gilds (Zuenfte) first appear? 

In the beginning of the 12th century (in German 
cities Worms, Wuerzburg, Cologne, Magdeburg, etc.) 

239. Were the aims of these gilds exclusively economic? 

No, but preponderantly economic. They likewise 
pursued religious, charitable, military and political 
and social aims. The gilds' economic aims were 
chiefly to safeguard the rights of the consumers by 
furnishing solid, good, conscientiously executed wares 
of every description and to insure to the members of 



MEDIAEVAL GILDS. 73 



the gild a secure and adequate price and a respect- 
able standard of living. As a guaranty of the main- 
tenance of excellence of workmanship no member 
was admitted unless he had proved his professional 
competence by furnishing a masterpiece according to 
the severe requirements of the gild. The member- 
ship of the gilds was composed of apprentices, jour- 
neymen and masters (Lehrlinge, Gesellen, Meister). 
The decline of the gild system sets in with the 30- 
Years war. 

240. How may the mission and the work accomplished by 
the gilds be summarized? 

They were economic organizations for the ad- 
vancement and protection of their crafts, for the pro- 
tection of the interests of the consumers, to uphold 
the honor of their trade and of the city, the chief 
bearers and promoters of whose splendor they proved 
themselves; they were the invaluable depositary of 
the human and technical education of a large por- 
tion of society, exponents of professional honor and 
champions of the rights of honest labor, the living 
expression of economic solidarism or community of 
social-economic interests so ruthlessly denied and de- 
stroyed by the philosophy of individualism. They 
were imbued with a deep christian spirit and in them 
the social ethics of the church achieved one of the 
finest triumphs of christian civilization. The capac- 
ity of the Catholic Church for social leadership and 
her competency to guide society forward to the goal 
of true culture, economic prosperity and christian 
concord has been signally demonstrated in the his- 
tory and .the beneficent mission of the gilds which 
with the entire civilizational influences emanating 
from them are perhaps the finest and most magnifi- 
cent monuments ever reared by any social philosophy. 
The gild system of the Catholic middle ages is the 
school at which our own present age will have to learn 
anew the principles for the social, economic construc- 
tion of the world. ''The gild was an organization for 
the working middle class, for capital and the men of 
wealth ; it was a station of peace in the great world- 
historic struggle between labor and wealth, but such 

6 



74 MEDIAEVAL GILDS. 

a one which was most favorable to labor working- with 
a small capital." (See Schmoller, Tucherzimft, and 
Grundriss.) 

NOTE — A class of brotherhoods which deserves 
special mention is that of the gilds of the mining 
trades, which from an early date were very import- 
ant in Saxony and Bohemia. "No politician or social- 
ist of modern times," says H. Achenbach (Gemeines 
Deutsches Bergrecht, I, 69, 109), "can suggest a labor 
organization which will better accomplish the object 
i of helping the laborer, elevating his position, and 

maintaining fair relations between the employer and 
the employed than that of the mining works cen- 
turies ago." The statutes of these mining gilds show, 
indeed, a remarkable care for the well-being of the 
laborer and the protection of his interests. Hygienic 
conditions in the mines, ventilations of the pits, pre- 
cautions against accidents, bathing houses, time of 
labor (eight-hours daily — sometimes less), supply of 
the necessaries of life at fair prices, scale of wages, 
care of the sick and disabled, etc., no detail seems 
to have been lost sight of. P. J. Marique in "Guilds," 
The Catholic Encyclopedia. 



CHAPTER XL 



Article 1. 
JOINT STOCK COMPANIES, ETC. 

241. State the juridical nature of the individual under- 

taking. . 

The individual undertaking is one in which 
burden, risks, and profits belong to the individual 
business man. 

242. State the juridical nature of the partnership under- 
ing. 

This is an undertaking in which the risks, bur- 
den, profits and losses belong jointly to either or each 
partner, so however, that in the event of failure of 
either or any of the partners the other or others are 
liable for the payment of all the outstanding debt to 
creditors of the partnership concern. The partners 
are jointly and severally liable for all the debts of the 
concern to the extent of their entire fortunes. 

243. What is the regular form of the modern business cor- 

poration? 

The joint stock company. 

244. What is a joint stock company? 

The joint stock company is an incorporated un- 
dertaking of a plurality of persons, having juristical 
personality and contributing the corporation capital 
which is almost regularly marketable and transfer- 
able and distributed in shares of an equal par value. 
75 



76 JOINT STOCK COMPANIES, ETC. 



The owners of the capital shares are members of the 
company. Or the joint stock company is a corpora- 
tion vested with rights of a legal personality, formed 
for the purpose of the transaction of regular business, 
the necessary capital being contributed by the mem- 
bers of the company, stockholders, who are liable for 
the company's debts, and entitled to its profits, in 
proportion to their individual holdings. 

245. Of what duration is the charter of this company? 

It may be perpetual or limited to a number of 
years. 

246. How are they legally founded? 

Either by special act of legislation or under a 
general incorporation law. 

247. What is the liability of the owners of this company? 

Mostly limited liability, to the extent of their 
holdings of stock; national bank stockholders are 
liable for double the amount of their holdings. 

248. Of what nature is the capital or stock of this com- 
pany? 

Preferred and common. 

249. Describe either class of stock. 

Preferred stock represents a prior claim in the 
company, both as to the capital and to interest or divi- 
dend, which is usually fixed and guaranteed. The 
preferred stock is a loan to the company. 

The common stock represents actual (partial) 
ownership of the company's capital, and it is not 
a loan, its dividends are not guaranteed but represent 
all the dividends remaining after the preferred stock 
dividends have been paid. 

250. What is a bond? 

A bond is an instrument of credit, usually in the 
form of a promissory note, bearing interest of a spe- 
cified rate, usually redeemable at a definite time. 
Bonds issued by a business corporation represent 
loans made by the bondholder to the corporation and 
a prior claim in the company's assets ; they are, gen- 
erally speaking, one form of equity in a business un- 



JOINT STOCK COMPANIES, ETC. 77 



dertaking. (Bonds and stocks are value capital and, 
as it were, are the shadow of the undertaking whose 
invested capital they represent or are declared to be. 
Their value is contingent on the productivity and 
stability of the undertaking. A bond in a business 
corporation, denotes credit, stock denotes ownership.) 

251. When did stock companies or approaches to it first 
arise? 

Forms of stock companies began as early as the 
Middle Ages. The Italian city republic had early, 
for the purpose of diminishing the individual risk of 
sea trading, developed the sea trading- corporation; 
we find stock corporations in German and Italian 
trade; the privileged trading companies of the 17th 
century, possessing the grant of monopoly by state 
charter, are a more perfect form of stock corpora- 
tion, such as the Dutch East India Company, com- 
posed of many local companies and shipping partner- 
ships (1602) ; the English East India Company, char- 
tered 1600, dissolved in 1858; in France, similar com- 
panies created under Richelieu for the colonization 
and exploitation of Canada; later the Indian Com- 
pany, John Law's, French Mississippi Company, 1717- 
1720 and many other in these and other countries. 

252. Which fields of enterprise have been chiefly favored 

by the early joint stock companies? 

Shipping, international and transoceanic trade, 
mining, colonial, canal, railroad and banking enter- 
prises. 

253. Mention some of the largest joint stock companies in 
the world. 

United States Steel Trust; Rockefeller's Stand- 
ard Oil Company, The Pennsylvania, New York Cen- 
tral, The Southern, and Northern Pacific railways, 
the German Bank (Berlin and branch banks), Gelsen- 
kirchener Mining Company, Frederick Krupp 
Works, General German Electric Company, Hamburg 
American Line, etc. 

254. Is speculation in the stock markets of recent origin? 



78 JOINT STOCK COMPANIES, ETC. 

No. It was very highly developed and some- 
times was practiced with a rage and mania that has 
seldom been equalled later, in the seventeenth cen- 
tury, when rich and poor, either sex and people of all 
walks of life gambled in the great exchanges of those 
times. 

255. What was (he Tulip Craze? 

It was a mania for speculating in the purchase 
and sale in the Netherlands of rare specimens of 
tulips, which became the object of as eager and as 
universal a speculation as any staple or enterprise in 
later times, tulips being bought and sold as eagerly 
as railroad stock, and single tulips being bought in 
the stock markets at fabulous prices, some species 
commanding prices of ten tnousand dollars and more 
in modern money. In 1637, 123 bulbs of tulips were 
sold at 90,000 florins, in Alkmar, Holland, and within 
a few years in a single Dutch city the tulip specula- 
tion had amounted to values of ten million florins. 
(See Sombart, Der Bourgeois.) 

256. State the advantages afforded by the joint stock com- 

pany. 

The joint stock company renders possible or facil- 
itates the assembling of large capital for great and 
costly undertakings ; it has opened avenues of use- 
fulness and profit to the small saver's capital; it has 
stimulated small savings and thrift; it has opened 
wider opportunities for labor, employment, special- 
ization of technics, has cheapened and increased pro- 
duction, stabilized industry and employment, espe- 
cially in critical periods, has indirectly served to 
decentralize the building up of fortunes and has 
tended toward an equalization of incomes and has 
rendered possible the exploitation and material civ- 
ilization of distant countries with home money (co- 
lonial enterprises, foreign mining and railroad enter- 
prises.) 

257. State some of the disadvantages adhering to the joint 

stock company. 

Tendencies to reckless, unsound and dishonest 
speculation are fostered ; reckless founding of under- 



JOINT STOCK COMPANIES, ETC. 79 

takings, over-capitalization ; topheaviness (too costly 
and too elaborate personnel of management) ; lack 
of sense of responsibility; the impersonality of cap- 
ital and undertakers carried to extreme; not seldom 
unwieldiness of management and lack of decision, 
independence; the divorce of the directorship of the 
undertaking from its owners (the stockholders) ; the 
repression and reduction of independent small un- 
dertakers and a corresponding weakening of the mid- 
dle class (which a century ago was recruited only 
from the rich land aristocracy.) As early as 1909 
incorporated companies in the United States em- 
ployed 75.6 percent of American wage earners and 
manufactured 79 percent of all products of manu- 
facturing industries. 

258. Mention the chief forms of syndical and co-operative 
undertakings. 

Rings, Pools, Syndicates, Trusts, Kartells, Hold- 
ing Companies, all of which incline to the develop- 
ment of monopolistic tendencies. 

259. What is a Kartell? 

A Kartell (in America: pool, in France: les car- 
tes or syndicats) is a voluntary contractual agree- 
ment, or an association (founded on such agreement) 
of independent undertakings founded for a specified 
period, for the purpose of regulating production and 
sales, and with a reasonably assured control of the 
market, to eliminate anarchy of production and un- 
restrained competition from the circle of its mem- 
bership. 

260. Are Kartells and their purposes uniform? 

By no means, they are of the most various na- 
ture, the chief objects of the Kartell agreements be- 
ing: 

(a) Common agreement with regard to terms 
of payments, grant of discount in sales to custom- 
ers, uniform charges for packing, freight, etc.; 

(b) More or less definite agreement as to 
prices ; 

(c) Price agreement with punitive sanction, 



80 JOINT STOCK COMPANIES, ETC. 

bond being- sometimes deposited by members as se- 
curity ; 

(d) Agreement on volume of production; 

(e) Distribution of orders among members 
along territorial or other market lines; 

(b) Agreement as to common purchase of ma- 
terial. 

(The Pool and Kartell are dynamic in their con- 
stitution and their operation. The less free scope 
and independence of business management a Kartell 
agreement leaves its members, the more perfect it 
will be and the more it will assert its economic tend- 
ency toward: monopoly, regulation of production, 
greater guaranty for steady employment of its labor- 
ers, better labor conditions, but also a greater de- 
pendency of the laborer in the Kartell. The Kartell 
has been favorable to technical progress, has cheap- 
ened products and has bettered the conditions of la- 
bor). 

261. Which lines of production lend themselves favorably 
to Kartell control? 

Such products as admit of ready standardization 
and as do not require much technical care, or are not 
easily subject to changes of fashion, taste, require- 
ments of arts, especially: minerals, salts, timber, 
ores, and half finished products from these raw ma- 
terials. 

(The German Kartell is older than our Amer- 
ican Trust. Germany is the classical home of the 
Kartell. In Germany there were before 1864 four 
Kartells, in 1870, 6; about 1896, 260; in 1900, 300; 
in 1905, at least 385 Kartells comprising 12,000 in- 
dustrial plants, the chemical industry alone being 
represented with 100 kinds of products. The form 
of industrial combination of the Kartell is already 
widely in vogue in Italy (iron, sugar, paper, marble, 
cotton, sulphur, fertilizer, silk, glass) ; in Spain in 
the same industries and in chemicals, copper, salt ; 
in Scandinavia, in timber, copper, cement, lime, gran- 
ite, fertilizer, etc. ; in Roumania (petrol and other 
branches) ; in Russia, coal, iron, copper, cement, 
sugar, matches, salt, spirits, mirrors, paper, chemic- 



JOINT STOCK COMPANIES, ETC. 81 

als, petrol, glass, rubber, asbestos, textiles; in Switz- 
erland, silk, cotton, cement, brick, chocolate milk, 
vinegar, electrical supplies, watches etc.; in Portugal 
Bulgaria, Egypt, sugar; Japan, silk, cotton, tea, coal, 
matches, beer; in Turkey, Cuba, Argentina and Bra- 
zil; Chile, Mexico. — See Pesch, National Oekonomie, 
and Lief man, Kartelle und Trusts.) 

262. What is a Ring? 

A ring is a transitory, casual, purely speculative 
combination of undertakers, mostly merchants, for 
the purpose of achieving a transient monopoly, or of 
securing a transient monopoly price. Rings buy up 
the whole or the greater part of the supply, often pay 
high prices and consequently must demand high 
prices. They are a detriment to national economic 
interests. (A case of a "ring" with beneficent re- 
sults was that of Joseph of Egypt and the Paraoh 
which bought up and controlled the entire crops of 
seven years to meet the crisis of the seven lean 
years.) 

263. What is a group or a concern? 

A group or a concern is a loose combination of 
undertakings which buys up such a large percentage 
of the stock of other undertakings as to dominate and 
control them (instance: a bank concern controlling 
a railroad.) 

264. Which causes were unfavorable to the development 
of the Kartell in England? 

The ultra-individualistic philosophy of the Eng- 
lish world of economists, the restraints of the Eng- 
lish law, and an insufficient protective tariff. 

265. What Kartells had, desuite all this, grown up in Eng- 
land? 

As early as 1850 we find in England Kartells in 
coffee, printing trades, insurance, railways; and to- 
day, also in coal, iron, textile, porcelain, wall-paper, 
chemicals. These Kartells are loosely organized, not 
seldom without coercive sanction, and of short dura- 
tion. 



82 TRUSTS. 

Article 2. 
TRUSTS. 



266. Give a description of the Trust. 

The trust, unlike the Kartell, is not based on the 
principle of mutual aid in the struggle against com- 
petition, but on fusional combination of the property 
of the trust members. The trust's chief purpose, 
however, is, like the Kartell's, monopoly. The trust 
is a higher development and an ulterior step forward 
in the direction of large scale production. The Kar- 
tell does not deprive its members of all economic 
freedom of action. It leaves them masters in their 
own plants, owners and sole beneficiaries of their pat- 
ents, leaves them free choice as to their workers, 
and as to the technical arrangement of their plants. 
The trust is not an agreement between independent 
undertakers, but it is community of management 
(Betriebsgemeinschaft). Technically, the plants of 
the trust members may continue autonomous, eco- 
nomically and factually they are united into collective 
property. They are not allied, like the members of 
the Kartell, but they are united under one chief 
leader. The trust is not a combination of undertak- 
ings by virtue of contractual agreement, like the 
Kartell, but it is a permanently united collective un- 
dertaking. (The Kartell has been compared with a 
confederacy, the trust with a federation. This com- 
parison while valid for the Kartell, is not valid for 
the trust, because the trust has no "member states" 
like the federation — United States). In short: Kar- 
tells are combinations of the undertakings by agree- 
ment, trusts are total fusions of undertakings by col- 
lective ownership, financial unions. 

267. What kind of difference, then, obtains between the 

Kartell and the trust? 

Not gradual, but a specific difference; the trust 



TRUSTS. 83 



is an entirely different species from the Kartell, under 
the common genus of monopolistic combinations. 

268. Can you give the contrasts between Kartell and trust 
according to Tschierschky ("Kartell und Trust," 
1911)? 

According to this authority on the subject the trust 
is founded on the ownership of stocks, the Kartell on 
contract ; the trust is dissolved by a crisis (or by the 
law— the author), the Kartell by agreement; the 
trust affects even the technical and the financial sta- 
tus of its plants, the Kartell only the business result; 
the trust entirely annihilates the independence of its 
undertakings, the Kartell curtails it; the trust may 
embrace the most diverse groups of enterprises, the 
Kartell only homogeneous ones. 

269. Give a brief definition of the trust. 

The trust is a combination or fusion of a num- 
ber of undertakings into one single autonomous un- 
dertaking, not by agreement, but by the establish- 
ment of collective ownership through the surrender 
of all or the majority of the stock to trustees, who 
in turn issue trust certificates in proportion to the 
value of the stock received from the trust members, 
respectively. 

270. What is the Holding Company? 

The holding company is a subterfuge invented 
after the passage of the Sherman anti-trust law; it 
does not abolish the identity or independence of the 
members of the trust, but effects a consolidation and 
unification of their aggregate stock and property. 
The economic effects of the holding company are the 
same as those of the trust. But the holding company 
does not necessarily strive for monopoly, merely for 
the elimination of competition. 

271. What does the Sherman anti-trust law forbid? 

Passed in 1890, the Sherman anti-trust law for- 
bids any agreement or combination in trust or other 
form, and any conspiracy for the restraint of trade 
between states in the United States and with foreign 

states. 



84 TRUSTS. 

NOTE — The holding company, treated above is a 
joint stock company, which does not buy the prop- 
erty of the various member undertakings, but their 
stock, or at least a majority of their stock, so as to 
control these member undertakings at the general 
stockholders' meetings. In this manner the holding 
company actually acquires the total control of the 
member undertakings, of their technical arrange- 
ment of the plants, their production, and the sale of 
products. See Pesch, Nationaloekonomic. See also 
Bolen, Plain Facts as to the Trust and the Tariff, 
with regard to the immense profits of trust under- 
writers; also Laughlin, Chicago, Aus dem Ameri- 
kanischen Wirtschaftsleben. 



CHAPTER XII. 



272. What is exchange? 

Exchange in the stricter sense is the technical, 
in the wider sense it is the economic distribution of 
goods ; the former is effected by the means of trans- 
portation, the latter by trade. 

273. What is trade? 

Trade in the objective and wider sense is every 
form of change of ownership of goods; in the nar- 
rower and subjective sense it is the professional serv- 
ices of people engaged in the work of transportation 
and of the buying and selling of goods. 

274. What is a market? 

A market is the scene, or field in which objec- 
tive and subjective trade takes place. In a narrower, 
or a concrete sense the market is the regular con- 
currence of buyers and sellers, and the place of buy- 
ing and selling; in a wider, and an abstract sense, 
the market is the sum of all opportunities of sale. 
(All trade in the objective and in the subjective 
sense is a distribution of goods as to time and place 
and is always a speculation, that is, it involves a risk 
as to change of prices in different places and at dif- 
ferent periods of the general market. Hence Price 
holds a central place and consideration in the world 
of exchange.) 

85 



86 PRICE. 

Article 1. 
PRICE. 

275. What is price? 

Price is the quantity of goods received in ex- 
change for another's goods. Price is the concrete 
expression of the exchange value of goods and both 
terms are, under this aspect, synonymous and con- 
vertible. 

276. What is a monopoly price? 

A monopoly price is such a one as the exclusive 
owner of a commodity has the power to exact, owing 
to exclusive ownership and exclusive control of sale. 

277. Which are the economic determinants of price? 

Supply and demand. 

278. Which factors determine demand? 

(a) The intensity of demand for the price 
(money) on the part of the seller; 

(b) The estimation the seller has of the price; 

(c) The estimation the seller has of the com- 
modity he offers for sale ; 

(d) The cost of production of the goods offered 
for sale ; 

(e) The possibility of sale elsewhere, that is, 
the competition of the buyers among themselves. 

279. Which factors determine the supply? 

(a) The intensity of demand for the goods on 
the part of the buyer; 

(b) The estimation the buyer has of the goods 
(that is, the value-in-use of the goods for the buyer.) ; 

(c) The purchasing power of the buyer; 

(d) The opportunity of purchase elsewhere (i. 
e., the competition of sellers among themselves). 

280. Which are the un- or non-economic factors determ- 
ining price? 

The non-economic factors determining or co-de- 



PRICE. 87 

termining price are psychological: fear, hope, force 
of imitation (in fashion and luxuries!); moral (the 
sense of equity) ; social (prestige and pride of rank 
which prompts to pay higher prices) ; religious, cus- 
tom, and habit. All these forces or motives defeat 
the economic principle of buying at cheapest and 
selling at highest price. 

281. State the influence of the law of cost of production on 
the formation of price. 

For commodities that are reproductive in quan- 
tities exceeding actual demand, the price will gravi- 
tate toward the lowest costs of production as long as 
there is competition on the part of sellers. (Cost 
of production here includes the normal, customary 
profit.) For if the price achieved by the seller is 
above normal, i. e., if their profit from sale is be- 
yond normal, there will result an increase of produc- 
tion which, in Turn, will reduce price toward level of 
cost of production plus normal profit. Nor can the 
price of such commodities fall and 'long continue 
under cost of production, for when level lower than 
cost of production is reached, production of such 
commodities will decrease, the commodities will grow 
scarcer in the market which will result in rise of 
price thereof. 

282. Does the cost of production under all circumstances 
determine the price? 

No; only within the maximum limits of the valu£ 
tion of the commodity by the buyer. As soon as the 
cost of production exceeds the highest limit of the 
estimation the buyer has for the commodity, the 
buyer will not buy, there will be no sale, except below 
the price originally fixed and demanded by the seller. 

283. Does a decline in the cost of production immediately 
result in a fall of price? 

No. But first follows an increase of production 
(which is equivalent to a greater supply) and then 
results a fall in price. (Foodstuff prices often rise 
immediately upon rise of cost of production.) 



88 MONEY. 

284. In which commodities does the price gravitate toward 
the highest cost of production? 

In all of those commodities whose increase of 
production is dependent on the law of diminishing 
returns, that is, at least all agricultural products. 
For example: If in a given country or section the 
demand for foodstuffs cannot be supplied except on 
condition that all land including less fertile land be 
utilized, or that more labor and capital (fertilizer) be 
expended to achieve the desired and necessary volume 
of supply, then the price of the product (crops, fruit) 
will be determined by the highest cost that had to 
be incurred (in the less fertile land) in order to meet 
the afore assumed demand. Those farms or pieces 
of land whose natural fertility render an additional 
expenditure of labor and capital unnecessary, will, 
therefore, produce under more favorable economic cir- 
cumstances ; cost of production of the former will rise 
to the level of the price of the latter. The differential 
of profit achieved in the product from the better land 
is called differential rent. (This differential rent or 
differential product is often achieved also by indus- 
trial or mercantile plants and undertakings operating 
under more favorable economic, technical or manag- 
erial conditions.) 



Article 2. 
MONEY. 

(Money is here treated merely as an element in- 
cident to market operations and as an expression of 
price in the process of an exchange of goods. A full 
treatise of the subject of money, credit and credit 
institutions is not intended in this book.) 



MONEY. 89 

285. Which was the original form of exchange in the mar- 
ket or in private exchange? 

Barter, by which good was given for good — bar- 
ter pure and simple. 

286. Which was the crudest form of money before metallic 
money came into vogue? 

Commodity-money, that is, certain commodities 
whose durability, value in use and general demand 
and acceptability made them convenient mediums of 
exchange. 

287. Mention some forms of this commodity-money (Waar- 

engeld). 

Cattle, grains, furs, salt, slaves, pearls, shells, 
raw metals, fish, rice, tobacco, household utensils, 
cloth, linen, especially among the Slavs about 1000 
A. D., cattle (pecunia from pecus: a head of cattle; 
capita: heads of cattle, the origin of our modern 
term capital and capitalism), arms, jewels, trinkets. 

288. How ancient is the use of metallic money, and did its 
appearance eliminate commodity money and barter? 

Metallic money, though in a crude state, is found 
to have been in use at the earliest stages of explored 
history, nor did it entirely displace barter nor com- 
modity money. (Barter existed on a very large scale 
in our Colonial history, is found in many places of 
the United States today, much more so in Oriental 
countries and is in contemplation in Germany today, 
on a large and refined scale, to avoid inconvenience 
and loss to Germany's economy through the low level 
of the German mark in foreign exchange). 

289. By what method was the value of metallic money or- 
iginally computed? 

Not by numbers (five dollars, twenty dollars, 
etc.,) but by weight (the English pound of s+erlin-o- 
the Roman as, the French livre, the Spanish <peso 
and the German mark are terms denoting not value, 
but weight of precious metal.) 

290. State briefly the origin of coin money. 

Coin money developed from rough pieces of met- 
als which were weighed ; for the sake of convenience 



90 MONEY. 

and to save time in the market, metal was cast into 
definite rough forms, into bars; finally the weight of 
the bars was stamped upon them ; and lastly a guar- 
anty was stamped upon the bar or other form of metal 
declaring the fineness, i. e., degree of purity of the 
precious metal therein contained. This was the crude 
form of the coin, whose impressions originally were 
made by private undertakers and traders, later on by 
cities, and the governmental authorities. 

291. What is a coin (of money)? 

A coin is a piece of metal whose weight and fine- 
ness is determined and guaranteed and certified upon 
its face. 

292. Who, in modern times, reserves for himself the exclu- 
sive right of coinage? 

The sovereign, or the state (in the U. S. the Con- 
gress), "The Congress shall have power to coin 
money, regulate the value thereof and of foreign 
coin," and "to provide for the punishment of coun- 
terfeiting the securities and current coin of the U. 
S.," (Constitution, Art. I, Section VIII). Hence the 
prerogative of coinage is vested exclusively in the 
Congress. 

293. What is the mint rate? 

The mint rate is the ratio of the number of the 
coins to a certain unit of metal weight. 

294. What is the mint par? 

The mint par is the equality in the relation be- 
tween the weights and fineness of pure metal in the 
coins of different countries. The mint par between 
the English pound sterling and the American dollar 
is £1=$4.8665. 

295. What is legal tender? 

Legal tender (Zwangsgeld, Kurant) is all forms 
of money the law compels creditors to accept. 

296. What is credit? 

Credit is the power to obtain goods or services 
by giving a promise to pay money on demand at a 
specified future date. 



MONEY. 91 

297. What is credit money? 

Credit money is any form of (money) credit 
which possesses in a given country equal acceptabil- 
ity with metal money. (It is called fiduciary or rep- 
resentative money). 

298. What is currency? 

Currency is both coin and credit money. 

299. What is a monetary standard? 

A monetary standard is the money system pre- 
vailing in a country, or more accurately, it is the 
kinds of money and the laws and terms on which the 
money is issued. Thus we have a metallic (gold or 
silver), a monometallic (only gold or only silver), 
a bimetallic (gold and silver), and a paper standard. 
(In the United State we now have a gold standard). 

300. Mention the kinds of money in use in the United 

States. 

Gold, silver, nickel and copper coin; U. S. gold 
certificates; U. S. silver certificates; U. S. Treasury 
notes ; greenbacks ; National bank notes ; Federal Re- 
serve bank notes. 

301. Which are the functions of money? 

Money supplies the function of a universal me- 
dium of exchange; a universal medium of payment; 
a universally available measure of value ; and a uni- 
versal means for the conservation of values for future 
use. 

302. How would you define money as it exists in our time? 

Money is all forms of instruments of payment 
whose form and unit of value are determined and 
recognized by the state. 

303. What are instruments of credit? 

Instruments of credit are written or printed 
promises to pay money at a given or at any future 
date. (Promissory notes, U. S. greenbacks, bank 
notes are instruments of credit). 

304. What is the general import of credit to national econ- 
omy? 

Credit in its various forms, especially through 



92 MONEY. 

its professional creators and agencies, the banks, in- 
creases the supply of available money (by bank de- 
posits and check payment systems which reduce the 
volume of necessary means of payment) , and in addi- 
tion gives elasticity to the actual supply of money by 
the instruments of credit, bank and state notes, bills 
of exchange, etc. These instruments of credit make 
it possible to meet the seasonal demands for more 
money or for less money (expansion and contraction 
of the money supply.) 

305. What is the face value of money? 

That value which the impression on the coin de- 
clares or which fractional currency and "paper 
money" represents. 

306. What is the exchange (foreign) value of money? 

The value expressed in the money of another 
country (thus the English pound is worth four dol- 
lars and a fraction of American money.) 

307. What is the (economic) exchange value of money? 

Its purchasing power. 

308. Which causes may change the exchange value or pur- 

chasing power of money? 

Rise or fall of the cost of production of com- 
modities, or of the cost of transportation (Panama 
and Suez Canals, railways and steamship navigation 
considerably decreased cost cf transportation) and 
change of demand. The causes for the change of the 
exchange value of money may, however, be inherent 
in the money itself, to-wit: changes in the quantity 
of money in circulation or changes in the demand for 
money or change of the value of domestic money 
against the value of foreign money (German, French 
and Italian money as against English and American 
money after the war.) 

309. What is the quantity theory of money? 

The quantity theory of money, propounded espe- 
cially by the English economists, assumes that prices 
are always a true expression or index of the quan- 
tity of money in circulation and of the volume of ex- 
change of commodities to be effected. The relation 



MONEY. 93 

of the volume of money to the volume of exchange- 
able commodities will determine the price of the lat- 
ter. When the volume of money is great and the 
volume of commodities is small prices will be high, 
and vice versa, more money means higher prices, 
less money lower prices. 

310. Is the quantity theory correct? 

Not absolutely so. The theory entirely disre- 
gards the fact that the extensive and elaborate sys- 
tem of money-saving credit, and the methods of pay- 
ment without money, is capable of inflating the 
shrinkage of money or of contracting it (by a re- 
duction of credit). The quantity theory may oper- 
ate locally and slowly, but its operation over a large 
field or internationally can be successfully met by 
expansion of credit. 

311. State some consequences of a decline of the value of 
money. 

Decline of the value of money, caused either by 
an increase of production of the precious metals or 
by an extension of credit, results in the rise of prices- 
and increase of production, increase of capital, rise of 
wages, increase of consumption. Unfavorable results 
however are : Losses to those who draw fixed salaries 
(with diminished purchasing power.) 

312. State the results of a rise in the value of money. 

They are contrary to the former, to- wit: Prices 
fall; formation of new capital is difficult; the credit- 
ors gain, the debtors lose; credit is contracted, pro- 
duction diminished; consumption increases only for 
those who draw fixed salaries, etc. 

313. State Gresham's law. 

Sir Thomas Gresham- English banker, merchant 
and statesman in the early reign of Elizabeth de- 
clared and demonstrated the principle that bad (de- 
preciated) money drives out good money, that is, 
when depreciated and full-value money are in con- 
current circulation, the good money will be withdrawn 
from circulation, hoarded or exported for foreign pur- 
chases while the (legal tender) bad money remains 
at home and in circulation. This holds true of good 



94 BALANCE OF TRADE. 

and bad metallic money, and of metallic money as 
against paper money. 

314. What, then, is the price of commodities? 

The price of commodities is their exchange value 
expressed in terms of money. 



Article 3. 

BALANCE OF TRADE — INTERNATIONAL 

PAYMENTS. 



315. What is the balance of trade? 

The balance of trade is the relation of the total 
sum of imports into and exports of goods from a 
country. When imports exceed exports the balance 
is called unfavorable to the country, and the balance 
is a passive one; if exports exceed imports, the bal- 
ance is called favorable and active. 

316. Does the balance of trade determine the status of a 
nation as a debtor or a creditor to foreign nations? 

No, the status is determined by the balance of 
payment, which includes not only imports and ex- 
ports of commodities, but imports and exports of 
moneys ,the rendering of services (England for many 
years was creditor for many nations combined by 
virtue of its ship-carrying trade, as a freight agent, 
to the extent of $500,000,000 annually) ; the bal- 
ance of payment includes also investments made by 
one country in another country, making the invest- 
ing country the creditor to the other country to the 
total extent of the value of coupons, dividends, or 
profits. (Germany had invested in the Americas as 
early as 1900 more than one billion dollars; England 
held hundreds of millions of American securities un- 
til the war, when many of them were disposed of in 
the U. S., and almost every country is creditor or 
debtor to some other country by virtue of invest- 



BALANCE OF TRADE. 95 

merits of capital made in the foreign country) ; pay- 
ments incident to travel of foreign tourists (Switzer- 
land's and Italy's great foreign source of income) ; 
other extraordinary obligations of country to coun- 
try, such as transfer of inheritance from country tr 
country, pensions, war indemnities, subsidies. All 
these assets and liabilities comprise the balance of 
payment. The balance of trade may be unfavorable, 
while the balance of payment is favorable. England 
had for many years an unfavorable balance of trade, 
while Russia's was favorable; yet England was and 
continues a creditor nation- while Russia was and is 
a debtor nation, because their balances of payment 
were favorable and unfavorable, respectively. The 
exports of commodities are visible and affect the bal- 
ance of trade, all the other factors mentioned here- 
above are "invisible exports" and with the exports 
of goods affect the balance of payment — which is the 
decisive thing in economic international relations. 

NOTE — Foreign capital invested in U. S. amounts to about $6,000,- 
000,000, indebting the U. S. to the investing countries to the amount of 
$300,000,000 annually in interest or dividends. American tourists' 
traveling expenses in foreign countries before the War were about 
$175,00,000 annually. 

317. Are great investments of one country in another an 

unalloyed advantage to the investing country? 

Not always, for these investments may retard 
industrial and other development at home while they 
may often help rear a strong competition against the 
investing country. 

318. How are international payments made? 

They are made by the employment of instru- 
ments of credit, mostly bills of exchange, and very 
rarely by money, the mere difference between im- 
ports and exports, if at all, being liquidated in form 
of money payment. 

319. What is a bill of exchange? 

A bill of exchange is a written order or request 
from one house or person to another house or person 
to pay a specified sum of money to a third house or 
person named in the request and to charge said sum 
of money to the account of the drawer. The bill of 



96 BALANCE OF TRADE. 

exchange is either for inland payment ("inland 
bill") or for foreign payment ("foreign bill"). How- 
ever, instead of ordering another person to pay, the 
drawer of the bill may premise to pay himself. The 
person issuing or "drawing" the bill is the drawer; 
the person requested to pay the sum specified is the 
drawee ; the person to whom payment is to be made is 
the payee. The bill of exchange is generally nego- 
tiable (transferable from one endorser to the other) 
and to be such, must be made payable to "order or 
to bearer" and every bill must state that payment is 
to be made "for value received." (Example: New 
York, December 1, 1919. $10,000. On February 1, 
1920- pay on this bill to the order of Mr. John Smith, 
London, or bearer, the sum of $10,000. Value re- 
ceived. To John Jones, Liverpool. (Signed) B. 
Franklin." — In this bill Franklin is drawer, Jones is 
drawee and Smith is payee. If John Smith in Lon- 
don, happens to be, in turn- a debtor to H. Mendoza, 
a merchant in Brazil, he may endorse the bill in 
favor of his Brazilian creditor, who, again, may en- 
dorse it to the original drawer B. Franklin, in New 
York, to whom he is indebted to the same amount, 
while B. Franklin may endorse it lastly in favor of a 
creditor of his in New York City, where actual pay- 
ment of the sum may be made, or the Dill of exchange 
started anew on an international tour until date of act- 
ual payment falls due, and the last endorser must ten- 
der actual payment. Thus, three international debts 
(in London, Brazil and New York) have been paid by 
means of a mere legal document, with no risk or ex- 
pense of actual money shipment. The indorsements 
on the bill of exchange may be very numerous, and 
if the available space on the bill of exchange is filled- 
a slip of paper may be securely attached and endorse- 
ments continued until further transfers are automat- 
ically excluded by maturity of the bill (frequently 
three months). 

The bill of exchange, at one time much in vogue 
in home trade in England, is now more and more 
displaced by the check, note and postal money order, 
but for international payments has steadily grown 
in importance. The bill of exchange, or simply "ex- 



BALANCE OF TRADE. 97 



change" is for international payments what the 
check is for inland discharge of obligations. 

[The procedure in international payment by exchange is usually 
the following: A Hamburg firm which has bought cotton from New 
Orleans and owes the merchant of that city 100,000 marks, does not 
pay his debt in money at New Orleans, but the New Orleans exporter 
draws a bill of exchange en the Hamburg merchant ordering the latter 
to pay the debt to a London bank with which the New Orleans mer- 
chant does business, or to a New Orleans bank. In issuing his bill 
of exchange the New Orleans merchant presents the same first to the 
New Orleans bank which pays the New Orleans merchant the debt and 
thus acquires the possession of the exchange and the claim it contains 
against the Hamburg merchant. The New Orleans bank then en- 
dorses the bill making it payable to a London bank with which the 
New Orleans bank has connections. The London bank, by accepting 
the bill and making it a claim in its own favor, makes thereby the 
bill an international instrument of payment. The bank in London 
may send the bill to Boston and sell its claim to a Boston banker, 
who in turn will sell it to an American merchant who is debtor to a 
merchant in Liverpool. The merchant in Liverpool will present it to 
the London bank which will pay it, if matured, in full, or if not yet 
matured with a discount in its favor. Meanwhile, at lea^t at maturity 
of the exchange, the Hamburg firm has made payment to the London 
bank by buying a similar exchange (a claim for payment) against a 
(buyer) debtor in London. This buyer debtor in London will present 
the bill to the bank, or to some bank in London or England, pay it 
to the bank and the Clearing House in London will cancel the indebt- 
edness of the Hamburg merchant now liquidated by the payment of 
another bill of credit on its books against the claim he had against 
his debtor in London.] 

320. What is discount on exchange? 

Discount on exchange is the sum of money a 
bank subtracts (as interest in advance) from the 
purchase price it pays for a bill of exchange, the dis- 
count being determined by the length of time inter- 
vening between purchase and maturity of the ex- 
change. 

321. Explain what is meant by "gold points" in the 
mechanism of exchange, that is, of international pay- 
ments. 

An exchange in the United States on England 
means a claim an American creditor has against an 
English debtor. If United States claims against Eng- 
land were always equally offset by English claims 
against the United States they could be mutually can- 
celled and the price of exchange bills would always 
be at par (one £ sterling equal to $4.86). But when 



98 BALANCE OF TRADE. 

more debts are owing to England than are owing 
from England to the United States there will be a 
greater demand in New York for exchange on Eng- 
land than vice versa. But- since exchange (in the 
United States for instance) represents foreign money 
in our country payable to a foreign country (Eng- 
land in our example), it (the exchange) is a commo- 
dity, its price is subject to demand. Since it has 
been assumed that more payments are due to Eng- 
land than to the United States the exchange in the 
United States payable in England will be in great 
demand and the banks will demand more than par 
that is they will sell a pound of sterling over $4.86. 
The American debtors are willing to pay over par to 
liquidate their debts in England. But they will not 
pay much over par at least not more per pound than 
it would cost to ship gold to England instead of pay- 
ing with exchange. As soon as the excess of ex- 
change over par per £ sterling would be more than 
the expense of shipping (and insuring) gold per £ 
sterling, the American debtors will not buy the ex- 
pensive exchange bills, but will pay by sending gold 
to England. When such a rate in exchange has been 
reached that American debtors prefer to send gold, 
the "gold point" against the United States has been 
reached. Exchange will not long remain at the gold 
point nor rise above it, for that would result in an 
exportation of gold to England which we do not de- 
sire. Nor can exchange fall lower and in excess of 
the cost it would entail to send money to England. 
For if it would fall so low then again it would become 
necessary to send gold rather (plus the expense of 
shipping and insuring) than to sell the bills of ex- 
change at a loss, to American debtors who wish to 
pay with them in England. Hence, the rate of ex- 
change will always oscillate between the high and 
low gold points. Nor will England sell exchange pay- 
able in the United States at a rate lower than it 
would enable a debtor to send gold to the United 
States, for then the "gold point" would be against 
England and would result in an export of that metal 
to the United States which is undesirable for Eng- 
land. 



CHAPTER XEI. 



FOREIGN TRADE AND TARIFF POLICIES 

Article 1. 

PATENTS, COPYRIGHTS, TRADEMARKS, 

TARIFFS. 

322. Aside from other effects of a Monopoly, how does a 
Monopoly react on competition? 

It checks or entirely excludes competition. 

323. State classes of competition. 

Personal abilities (of artists, inventors, singers, 
the Mayo Brothers as surgeons of monopoly charac- 
ter and many others) ; legal monopolies, established 
or granted by sovereigns or governments; copy- 
rights and patents (the telephone monopoly in the 
United States affords an instance of powerful mono- 
polies built on patent rights) ; government mono- 
polies (the postal service in most countries and the 
telephone, telegraph and railway services and other 
state monopolies in other countries) ; natural mono- 
polies (when not confiscated or reserved by the state) 
as : coal, oil, ore lands, etc. ; also natural monopolies 
of scenery attracting tourists and their money and 
forming the basis for an extensive and wealth-getting 
industry of hotels, transportation or health service 
99 



100 FOREIGN TRADE AND TARIFF POLICIES. 

(the magnificence of Niagara Fails, Yellowstone 
Park, California, Switzerland and its Alps- the Black 
Forest in Germany, the Rhine, the Hudson, Hot 
(Springs, Cairlslbad, Baden-Baden, Mackinac. Mich., 
etc.) ; natural monopolies of positions for gi<eaft 
industries (the steel industries in Pennsylvania and 
Ohio on account of closeness of anthracite and ores — 
via the Great Lakes; the cattle and packing in- 
dustries in Mississippi Valley — the great corn and 
fodder district; the great flouring mills in Minne- 
sota — the great wheat district or point of transit 
of Western crops ; paper industry in Maine — prox- 
imity of lumber, also in New York, New Hampshire, 
Wiseonsiin, and furniture in Michigan) ; natural 
site for great centers of traffic through water-ways 
(Pittsburgh and St. Louis at the junction of great 
rivers; Duluth, Chicago. Sault St. Marie. Toledo, 
Cleveland, Buffalo — the latter city perhaps the 
greatest inland harbor in the world) ; finally, capi- 
talistic monopolies as described in the case of the 
Kartell, Ring, Trust, etc. 

324. Which three legal institutions act in the form of mo- 

nopoly or at least considerably check competition? 

Patents, copyrights, trademarks and tariffs. 

325. What is a patent? 

A patent is the legal grant of a right issued to 
an inventor securing to him exclusively the monopoly 
of the production, or use, or sale of his invention, 
as the case may be. (Patents in the United States 
run for a period of seventeen years, and are granted 
for all new machines, improvements on them or on 
did machines, on improvements on devices already 
patented, on all new processes, formulas, composi- 
tions, mixtures, etc. 

326. What is a copyright? 

A copyright is a legal grant issued to an author 
of a book, an article, a musical composition, a drawing, 
sketch, etc., insuring to him the exclusive control or 
sale, or reproduction of his work, and is granted for a 
term of 28 years, renewable for the same length of 
time, in the United States. 



FOREIGN TRADE AND TARIFF POLICIES. 101 

327. Who grants copyrights and patents? 

The United States Congress, in virtue of Consti- 
tution. Article I. Section VIII, Clause 8- giving Con- 
gress the power : "To promote the progress of science 
and useful arts, by securing, for limited times, to 
authors and inventors, the exclusive right to their 
respective writings and discoveries." 

328. In what does the trademark differ from the copy- 
right and patent? 

In that it does not prohibit the imitation or re- 
production of an article bearing a particular trade- 
mark, but in prohibiting the illegal use and exploita- 
tion of the reputation of a concern. 

329. What is a trademark? 

A trademark is a distinctive mark, or name, 
or device affixed by a manufacturer or trader to his 
goods, prohibiting other manufacturers or traders 
from using the same device or name, or mark. Trade 
marks are recognized by law. 

330. What is a tariff? 

A tariff is a tax levied upon commodities 
passing over the borders of two states. It may be 
an export tax (as was usually levied in the Mer- 
cantile era, from 1500 - 1750. on rawstuffs going out 
of the country), or an import duty, or a duty on 
goods merely in transit through a third country 
from and to other countries. 

331. What is a tariff for revenue only? 

5Ct is a tariff levied merely for the purpose of 
providing funds for the government, with no ul- 
terior economic purpose (for instance: tariffs on 
coffee, spices and things not grown or produced in a 
country) . 

332. What are specific and what are "ad valorem" tariffs? 

Specific tariffs are such as are levied on imports 
per unit, or per weight, or bulk (ton of coal, yard of 
cloth, one or two locomotives) ; "ad valorem" tariffs 
are based on the value of imported articles. 

333. Which tariff is the more perfect but what are its 
handicaps? 



102 FOREIGN TRADE AND TARIFF POLICIES. 

The "ad valorem" tariff is the better tariff, but 
its fixing is difficult for the reason that the fair value 
is often very difficult of determination for the pur- 
pose of a fair and equitable levying of the tax (it 
is difficult to decide which value should be made the 
basis of the tariff: the value or cost of production, 
the sale value at place of exportation, or the selling 
price at place of importation, wholesale or retail 
price? Very often the wholesale price in the coun- 
try of the origin of the goods is taken as a basis). 

334. What is a tariff system? 

A tariff system is such an arrangement of tariffs 
as is devised and is consistently observed with a 
view to affording relief and protection to the home 
agricultural, industrial, trade, and labor demands in 
an equitable and rational proportion. 

335. What is an autonomous (independent) tariff? 

It is a tariff which has been fixed exclusively 
by the home government without regard to the de- 
mands or requests of foreign governments; if such 
regard is taken, however, the tariff is a "conven- 
tional" tariff. 

336. How do conventional, that is, tariffs based on conven- 

tion, originate? 

Through agreements between states, the agree- 
ments embodying as closely as possible the elements 
of trade advantage sought by the contracting states. 
The tariff agreements either include reduction of 
the tariff positions or at least a pledge not to ad- 
vance them. In either case of these agreements the 
tariff rates are fixed and stable between the con- 
tracting states. 

337. What are maximum and minimum tariffs? 

The former is a tariff in which the tariff making 
state fixes limits above which it agrees not to go; 
a policy resorted to when the calculation of the tariff 
in advance appears difficult or hazardous. The mini- 
mum tariff is the tariff which it is the intention 
of its author state to maintain at all hazards. 



FOREIGN TRADE AND TARIFF POLICIES. 103 

338. What are differential tariffs? 

Differential tariffs are tariff discriminations 
in favor of some countries against other countries. 
Differential tariffs are sometimes granted by colonies 
to their mother country, by neighbor state to neigh- 
bor state, or to home ships as against foreign ships 
f . i., if certain imports brought to New York in 
American ships were granted a reduction of the tariff 
rates as against imports carried to New York in for- 
eign ships. Differential tariffs are often used as a 
retaliatory discipline against states discriminating 
against another state. When established in such 
spirit and for such disciplinary purpose the differ- 
ential tariff is called a retaliatory tariff. (Differential 
tariffs were granted by Austria-Hungary in favor of 
the port of Fiume and Triest, and against Hamburg 
and Bremen whch were competing for trade with 
Fiume.) 



Article 2. 

EFFECTS AND FUNCTION OF THE TARIFF. 

COMMERCIAL TREATIES, NAVIGATION ACTS. 



339. Does a tariff raise the price of an imported dutiable 
article to the extent of the tariff itself? 

Not necessarily. The purpose of a tariff, of 
course, is to raise the price of imports and thereby to 
render them less marketable and less powerful in 
their competition with home products. The higher 
the tariff the greater the increase of price of the 
imported goods. 

•340. Does the tariff protect the home products equally? 
For instance: is "agriculture" or the "steel in- 
dustry" in all its plants and units equally affected 
by the protective tariff? 

By no means. The "steel industry," the "tex- 



104 FOREIGN TRADE AND TARIFF POLICIES. 

tile" or "sugar industries" are mere abstractions 
which cannot be protected. But what is protected 
are the individual plants of these industries, and 
the individual farming enterprises. Yet all in- 
dividual undertakings do not produce under equally 
favorable conditions, some bring a differential rent 
on account of peculiar fertility of the soil, or on 
account of more perfect machinery, or a more fav- 
orable market location, while others make only a 
normal profit, while others are merely maintaining 
themselves in existence. According to the relative 
economic advantages and disadvantages under which 
the individual plants may operate and produce their 
benefit from a protective tariff will vary in rate and 
volume. For some plants and entire industries the 
mere cost of transportation of the goods of a trans- 
atlantic or Mexican competition affords a protection 
equal to the protection by a tariff, while other plants 
operated near the place of landing of the foreign 
goods are not so favored. (For instance, Scandi- 
navian timber to be used on the U. S. Atlantic coast 
can compete easier with timber from Oregon and 
Washington than with timber from Maine or any 
of the Eastern states, because the transportation 
cost of Maine timber to the Atlantic coast is less 
than the transportation cost of Western timber. But 
if Scandinavian timber is destined to be used on the 
Pacific coast it will be a stronger competitor with 
Maine timber than with Western timber. Thus, Rus- 
sian grain sold in Germany and France had a natural 
protection against competition from American grain 
on account of the greater proximity of Ukrainian 
wheat fields to the grain markets of central and 
western Europe. But as scon as the homestead laws 
passed during and after the Civil War opened the 
great praries of the Mississippi Valley, and railroads 
and steamships reduced the cost of transportation, 
the grain competition of the American farmer with 
South Russia and German grain was keenly felt and 
Germany was compelled to establish grain tariffs to 
prevent the ruin of the German farmers and the de- 
preciation of their property. The homestead laws, 
the opening of the Mississippi Valley, American farm 



FOREIGN TRADE AND TARIFF POLICIES. 105 

machinery and the cheap and fast steamship freight- 
age economically placed the grain fields of Kansas, 
Nebraska, Iowa, Illinois, etc., on the very banks of 
the Rhine and made them strong competitors.) 
Hence, the tariff does not protect all plants of a pro- 
tected industry with equal force. The scarcity of ships 
for the transportation of North and South American 
grain and other raw stuffs produced in Europe will 
operate automatically as a protective tariff in favor 
of the countries competing with the Americans for 
some time to come. 

341. How should a tariff be constructed in order to function 

as a reasonable protection? 

It should be high enough to protect and keep 
alive such industries and plants as appears desirable 
to maintain. This is achieved when the tariff raises 
the price of the product to such a limit} as will suf- 
fice to pay the cost of production of the home plants. 
A sound tariff policy cannot intend the protection of 
plants struggling under every kind of adverse con- 
ditions, because this would be uneconomical for the 
consumers and would, at least for a time, insure ex- 
cessive profits to the best situated plants at the sac- 
rifice of the consumer's interests. (According to 
Professor Laughlin, Chicago University, writing in 
1906 "Aus deim Americanischen Wirtsehiaftsleben": 
The American steel industry already then needed no 
protection any more ; many American industries, still 
protected, need protection no more, and even those 
needful of protection would be amply protected by a 
tariff 50 or only 33 per cent of that prevailing. 

342. What is "dumping?" 

Dumping is the sale of home products at a 
cheaper price in foreign markets than they achieve 
in the home markets, and it is usually practiced by 
powerful large scale undertakings— mostly the trusts 
— in an era of overproduction. 

343. Is dumping morally reprehensible? 

Hardly, because it often merely denotes the fact 
that home conditions of production can compete with 
foreign conditions of production. Some times, of 

8 



106 FOREIGN TRADE AND TARIFF POLICIES. 

course, it is an indication of an excessive tariff pro- 
tection and of an undue exploitation of the home con- 
sumer. Its economical effects at home are mostly 
beneficial in that it keeps plants open and precludes 
suspension of employment of the laborers. (In the 
summer of 1900 the American prices of lead, wire, 
barbed wire, nails, soda, Portland cement were 20- 
25% cheaper in England than in the United States. 
The German wire nail Kartell in 1900 exported 19,000 
tons of its product at a loss of $11.00 per ton, but 
kept its men employed.) 

344. What is a commercial treaty? 

A commercial treaty is a convention or contract 
between states in which the contracting parties mu- 
tually establish rules and mutually binding obliga- 
tions concerning trade, exchange, travel, navigation, 
and industrial pursuits of their nationals residing in 
the foreign states. 

345. What is the general purpose of commercial treaties? 

To regulate the legal standing, rights and duties 
of their nationals residing in the other state's ter- 
ritory and they do not embrace only the economic 
activities of their nationals, but: 

(a) Their rights in the foreign country with re- 
gard to residence, ownership of mobile and immobile 
property, pursuit of gainful occupations, taxes, and 
standing in the courts; 

(b) Import and export duties and other taxes 
on articles of trade passing between the contracting 
states ; 

(c) Protection of their nationals, copyrights, 
patents, trademarks; 

(d) Terms on which navigation or other inter- 
course of trade is regulated; 

(e) Veterinary, hygienic and sometimes indus- 
trial insurance regulations. (Italian laborers for in- 
stance, enjoying under contractual agreement cer- 
tain rights of state insurance in Germany, and Ger- 
man laborers holding similar privilege in Italy.) 

246. What is the "most favored nation" clause in commer- 
cial treaties? 



FOREIGN TRADE AND TARIFF POLICIES. 107 

The "most favored nation" clause is, in general, 
an agreement, almost universally in vogue since the 
last seventy years, by which the contracting states 
pledge to each other the right not to be treated less 
favorably in tariff matters than any other state, not 
a party to the tariff treaty. This clause operated 
automatically in the sense that, as soon as one of the 
contracting states accords a trade advantage to a 
third state, then the other contracting state must at 
once be given the same privilege. The field of oper- 
ation of the clause is sometimes limited to certain 
privileges only. Some states make the operation of 
the clause dependent on certain conditions. Thus, the 
United States grants the privilege stipulated in the 
clause only when a third state has received from the 
United States a trade privilege gratis, without a com- 
pensation to the United States. But if the United 
States in trade agreement with England, for in- 
stance, grants a special trade advantage to Japan at 
a certain cost to the latter country, or on account 
of some advantage granted by Japan to the United 
States, then the United States will grant the same 
advantage also to England, if England offers a sim- 
ilar compensation to the United States as did Japan. 

347. By what term is this mutual trade treatment between 

states known? 

By the term of "reciprocity." 

348. What has been the attitude of the United States to 

the "most favored nation" clause? 

The United States has been chary of extending 
the privilege of this clause unmodified to foreign 
nations. Our country on principle refuses to accord 
an absolute "most favored nation" concession to any 
state, while European nations granted the clause in 
its absolute form to each other until the great war. 
The United States and Argentine, also, were granted 
the "most favored nation" clause by European states, 
much to the commercial disadvantage to Europe. 

349. Which two great theories in trade politics have ever 

occupied the minds of economists and of statesmen? 

The theory of free trade and the theory of the 
protective tariff. 



108 FOREIGN TRADE AND TARIFF POLICIES. 

350. What is "free trade" in its broad sense? 

It is a politics of commercial intercourse at home 
and with foreign nations unhampered by any gov- 
ernmental restrictions. 

351. By which schools and when was free trade chiefly 
represented and advocated? 

By the Physiocrats in the 18th and by Adam 
Smith and his followers and the Manchester peo- 
ple and their adherents, from 1776 to 1836 (at which 
latter date the free trade movement began to be 
especially fostered by anti-corn law agitators Grote, 
Roebuck, Hume ; in 1838 by Cobden, John Bright and 
others, in Manchester, England). Free trade move- 
ments are discernilb'le in almost every European 
country as a consequence of the influence of Eng- 
lish and French economic writers, political agitators, 
and of the thriving condition of the English national 
economy which since many decades is one largely, 
though by no means exclusively, of free trade. 

352. Which economic system was one emphatically of 
tariff protection? 

The mercantile system, prevailing from 1500 to 
1750, which practically dominated the entire eco- 
nomic politics of Spain, Portugal, France, the Neth- 
erlands, Prussia. Austria, Russia, the Italian city 
states and principally England. 

353. What is the principle inherent in the mercantile and 
in every thorough protective tariff system? 

The recognition of the politics of foreign trade 
as a part of the national state politics, that is, the 
interests of foreign trade are considered, together 
with the home productive interests, an essential ele- 
ment of the state interests and national and polit- 
ical power. 

354. Which are some of the most important features or 
measures of this mercantilistic and protective policy 
which, essentially, perseveres to this day? 

(a) Navigation and trade are nationalized, that 
is, while these interests remain in the hands of pri- 
vate undertakers (and not in the hands of the state) 
they are peculiarly favored and foreign shipping and 



FOREIGN TRADE AND TARIFF POLICIES. 109 

trade are discriminated against ; this policy was most 
rigidly adhered to in commercial intercourse with 
the colonies of European states; 

(b) Trade and its direction were rigidly deter- 
mined by the state, and a great influence was thereby 
exerted in the development of productions in the home 
country ; 

(c) Prohibitive, or at least restrictive tariffs 
are raised up against foreign imports and premiums, 
subventions and other aids are extended to the ex- 
porting home industries, and to shipping companies 
(England has for a long time maintained a system 
of direct financial assistance to its shipbuilding in- 
dustry and the new German Empire has decided to 
adopt a similar course) ; 

(d) By navigation acts. 

355. Which country has more thoroughly than any other 

stimulated foreign trade and sought the exclusion 
from it of competing nations, by means of naviga- 
tion acts? 

England. 

356. What do you know of English navigation acts. 

England has passed fifteen of such acts between 
1381-1650, the one passed in 1651 by Cromwell, then 
autocrat (protector) of Great Britain, being the most 
noteworthy, the most ruthless and the most decisive 
for the establishment of British supremacy on the 
seas. 

357. Which were the chief provisions of this navigation 
act of Cromwell's? 

(a) No ship may be admitted to coastwise trade 
in English waters unless it be exclusively English- 
owned, commanded, and three-fourths manned by 
English sailors; 

(b) European goods may, as a rule, be carried 
to England only in ships belonging to the country 
originating the goods (this excluded foreign ships 
as freight carriers for non-English states, prevented 
Englishmen from importing European products to 
England and prevented European non-English states 



110 FOREIGN TRADE AND TARIFF POLICIES. 

from getting the carrying trade of the extensive 
British colonies) ; 

(c) European goods must be carried as pro- 
vided under a) ; 

(d) Import and export to and from English col- 
onies is restricted to English ships and no non-Eng- 
lishman may settle as a merchant in English col- 
onies. This navigation act was modified first in 1833 
and was repealed in 1849. 

358. What prompted Cromwell to adopt such a rigorous 
act? 

His purpose was to exclude continental Europe 
from English trade and English colonies, to repress 
and to annihilate the exceedingly flourishing trade 
of the Netherlands and the (declining) trade of Spain 
and the (rising) trade and shipping of France. 

359. Which were the immediate results of this drastic navi- 
gation act? 

Results common to most strict protective meas- 
ure (in the start) to-wit: An increase of cost of 
English shipbuilding and an increase of shipbuilding 
itself in England ; increase of cost of freight, of sail- 
ors' wages, of European goods imported into Eng- 
lish colonies, impairment of English trade with Scan- 
dinavia, Russia, Greenland; retaliatory measures 
from France and Sweden, and a number of trade 
and naval wars, especially those with Holland in 1651- 
1655 and 1672-1674. 

360. What was the relative trade position of England and 

Holland in 1651? 

Holland was the leading naval and trading state 
in Europe, the greatest colonial power, owning and 
operating ships in all known seas and in all coast 
waters and harbors of Europe ; 500 Dutch ships were 
engaged in the Dutch-English trade against only 50 
English ships; and of 20,000 trading vessels then 
existing about 16,000 were Dutch property (estimate 
of French statesman Colbert). 

361. How did the excessive protective (Mercantile and 
navigation) policy of England affect her North Amer- 
ican colonies? 



FOREIGN TRADE AND TARIFF POLICIES. Ill 

The best and richest portion of them declared 
their independence and established themselves as the 
United States of North America. (See grievances 
of the Thirteen colonies against English trade meas- 
ures in Declaration of Independence). 

362. What do you know of piracy as a practice connected 

with nationalistic trade protection and expansion in 
the mercantile (protectionist) era? 

Piracy was not a mere practice, it was an insti- 
tution sanctioned and abetted by all western states 
of Europe and by the Italian city states. Merchants 
and states sought to recover their trade losses by 
preying upon the peaceful trade ships of other na- 
tions, even in the deepest peace. Courtiers and the 
nobility and, in England, "gentlemen adventurers" 
fitted out and manned pirate vessels for the purpose 
of easy gain. In the middle of the 16th century the 
coast waters of the British Isles were continually 
patrolled by pirate ships. Sir Thomas Chaloner, one 
of the judges of Charles I, 1648, and a member of 
the Parliament, declared that in the summer of 1563 
there were in the English channel more than 400 
pirates who took away from 600-700 French trading 
ships in a few months. In the days of Queen Mary 
and later, in the days of the Stuarts, many nobles of 
high rank were engaged in piracy. It was common 
custom not to respect foreign property on the high 
seas; English depredations upon Spanish fleets in 
the midst of peace finally exasperated Spain to the 
point of fitting out the Armada whose expedition to 
English waters was not prompted by religious mo- 
tives for the repression of Protestantism but by mo- 
tives of self-protection. English wars with foreign 
nations were peculiarly favored by the Whigs, the 
party which represented the money interests of the 
cities, the manufacturers and shipbuilders, because 
these wars afforded welcome and enriching oppor- 
tunities for piracy as a by-product of naval warfare. 
(see Schmoller, Grundriss, Sombart, Der Bourgeois). 

363. What do you know of the policy of protectionism by 

tariff in the middle ages? 

The protective policy of European states afore 



112 FOREIGN TRADE AND TARIFF POLICIES. 

described is a consistent application of protective 
principles as embodied in the trade regulations gov- 
erning the commercial intercourse of cities with the 
country and of city and city in the middle ages. 
The chief purpose of this mediaeval protectionism 
was to monopolize trade in favor of the city mer- 
chants and the citizens. The factors entrusted with 
this policy and its principal beneficiaries were the 
gilds. 

36 4. Has the policy of free trade as proposed principally 
by Adam Smith in 1776 and then supported by others 
ever been fully realized in England? 

No. England while more addicted to free trade 
than any other state has never entirely abandoned 
the principle and practice of protection. Even the 
odious corn laws (protecting the meagre and lan- 
guishing agricultural interests of the absentee land- 
lords of Great Britain to the intense suffering of the 
poorer classes, were repealed only after a severe 
struggle of the free traders, in 1842. 



Article 3. 

LIST'S AND HAMILTON'S TARIFF SYSTEM. 

THE TARIFF AND SECESSION — TARIFFS 

IN THE UNITED STATES. 



365. What is the principle of protective tariff for indus- 
trial education? 

It is the principle or demand of a tariff to be 
maintained so long as the industries and the general 
economic powers and capacities of a nation shall not 
yet have developed to such maturity as will enable 
them to meet foreign competitors with reasonable 



FOREIGN TRADE AND TARIFF POLICIES. 113 

prospects of success. The chief and the most genial 
economist favoring this principle was Frederick List 
of Germany (1789-1846), v/ho during a stay of sev- 
eral years in the United States, was beneficially in- 
fluenced by Alexander Hamilton, first treasurer of 
the United States, and, in turn influenced American 
business men in favor of protection and first evolved 
his theory of protection as an educational measure 
for the nation, for the benefit of the United States. 
According to the theory of List it is more beneficial 
to a nation not to buy cheaper products from for- 
eign nations and to neglect its own industrial devel- 
opment; but on the contrary, that a protective tariff 
should be established and maintained until the nat- 
ural and racial, national resources and all productive 
powers of the nation have been brought to full de- 
velopment. The higher cost of living and the numer- 
ous sacrifices imposed by such a protective policy of 
industrial education (List calls his tariff "Erzie- 
hungszoll Zur Nationalen Selbstandigkeit") will bear 
their rich reward in the economic strength, self-re- 
liance and competitive power so acquired, List's 
tariff is quite different from the narrow-minded pol- 
icy of mercantilistic selfishness and is based on the 
b^oad principle of the national-economic community 
of interests. List's writings on American economic 
problems of development, including a protective pol- 
icy, were loudly welcomed by the American business 
world. 

State the views of Alexander Hamilton on the tariff 
problem of the early United States? 

Alexander Hamilton, the most ardent advocate 
of the Constitution of the United States before and 
after its ratification, in 1787-1790, and one of the 
really great American statesmen, recognized the 
necessity of industrial national development along- 
side with our agricultural interest, advocated export 
premiums, the development of all resources and pow- 
ers of the nation, the more intimate connection of the 
South and North in trade and transportation. Ham- 
ilton's ideas, considerably modified, of course, in the 
direction of a strict policy of protectionism, acquired 



114 FOREIGN TRADE AND TARIFF POLICIES. 

dominant influence on the subsequent tariff policies 
of our country. In his official report to the house, on 
the subject of American manufactures, May 5, 1791, 
Hamilton refuted the free trade doctrine and stren- 
uously advocated protection in the sense of List. 

367. State in brief outline the tragic part the tariff prob- 
lem played toward the movement of Secession in the 
United States. 

The South, as we historically know it, from the begin- 
ning of our constitutional history devoted its lands, resources, 
energies and talents to a one-sided and ill-advised agricultural 
policy. Aside from the cultivation of rice in the marshes, of 
a little sugar, and of tobacco the South more and more drifted 
into co'ton cultivation, which was as ruinous as it was nar- 
row economically, retarding, if not repressing entirely the 
development of mines, railways, roads, the industries, and 
making the South almost entirely dependent on the North 
and on England for every article of use. "The North is the 
mecca of our merchants, and to it they must and do make two 
pilgrimages per annum — one in the spring and one in the fall. 
All our commercial, mechanical, manufactural, and literary 
supplies come from there." Then the writer Hinton Rowan 
Helper, in his "The Impending Crisis of the South," New 
York, 1857 — a book as important in that day from the aboli- 
tionist viewpoint as Unce Tom's Cabin — enumerates a lengthy 
scale of articles practically the entire sum of human needs, 
which the South was compelled to import from the North or 
England. The South had no industry and no manufactures 
and. consequently, was not interested in indus/trial protection, 
but was keenly interested in free trade. Protection meant for 
the South a burden from which it derived no profit. The 
North was keenly interested in the tariff owing to its fast 
developing and various industries and trade. The tariff pol- 
icies of Hamilton and of successive administrations were re- 
ceived with a spirit of resentment in the South. This resent- 
ment was peculiarly marked in 1816 when congress passed a 
tariff law to meet the danger arising out of a ruinous influx 
of English products into the country. The South's complaint 
was 'drastically phrased that "the Northern factories were 
hein«: fattened with the life-blood of the South." The political 
and economic cleavage evidenced in the tariff debates in con- 
gress was shown with increasing distinctness to be parallel 
with the boundary lines of North and South. When, in 1828, 
chiefly through the efforts of Henry Clay and Daniel Webster, 
the Northern trading interests had secured a further degree 
of protection in a new tariff law, the legislature of South 
Carolina, amid the applause of the people, under the leader- 
ship of Calhoun, and in imitation of the precedents estab- 
lished by Kentucky and Virginia in 1798 and 1799, respectively 
and with an appeal to the state sovereignty doctrine, declared 
the federal tariff law (or any other future federal measure) 



FOREIGN TRADE AND TARIFF POLICIES. 115 



null and void when, and because, the measure were inimical 
to the interests of the State of South Carolina. This act of 
opposition on the part of South Carolina, called the "Nullifi- 
cation Act" was moreover declared by her to be the only 
course possible for her as a sovereign state and that if the 
majority (the United States) persisted in its oppression of the 
minority (a single state), the minority had the right to secede 
from the Union. The Nullification Act, passed by a state con- 
vention Nov. 24, 1832, at Charleston, was entitled: "An ordi- 
nance to nullify certain acts of the congress of the United 
States, purporting to be laws laying duties and imposts in 
the importation of foreign commodities." The nullification 
doctrine met with eager acceptance in the South and contrib- 
uted considerably to Southern discontent which finally burst 
forth in the Rebellion of 1860 when, again, South Carolina 
took the lead. Clay averted a crisis by a compromise tariff 
in 1833. But the subsequent development of the North and 

South so heterogeneous in essential regards, especially that of 
industry and Immigration and free labor, widened the reft be- 
tween the two sections until it became irreparable except by 

war. The election of Lincoln on an abolitionist and tariff law 
platform alarmed and incensed the South to the degree of 
secession. 

368. Who demonstrated the harnifulness of the one-sided 
Southern economy, not based on the equal and har- 
monious development of the national resources, as 
Hamilton and List demanded? 

Hinton Rowan Helper, a Southerner, in his book 
The Impending Crisis of the South, published in New 
York in 1857 and having reached already in 1860 the 
140th thousand, being with its rich statistical mate- 
rial and voluminous other matter a conclusive refuta- 
tion of the slave and cotton economy of the South 
and for its stirring effect upon both North and South 
being, in its importance as a factor of political and 
social propaganda, second only to Uncle Tom's Cabin. 
The publication of the book at its first appearance 
having been made the subject of Congressional op- 
position or endorsement — as the party lines sug- 
gested — and a resolution even being introduced by 
Rep. Clark from Missouri, declaring any person "who 
has indorsed and recommended the book . . . ." 
unfit "to be speaker of the House." The candidate 
for the speakership, Mr. John Sherman, Ohio, after a 
contest of eight weeks withdrew his name as candi- 
date. The book was an event in the great political, 
social and economic controversies of the decade 1850- 



116 FOREIGN TRADE AND TARIFF POLICIES. 

1860, created the keenest embarassment of the 
planter aristocracy of the South, whose radically 
mistaken economic theory it demolished with merci- 
less blows and irrefutable logic. The book, naturally 
was an eyesore to the British whose interests were 
identical with those of the Southern planters. 

369. What are the merits of tariff protection? 

Tariff protection appears the only logical course 
possible for any nation striving for economic and, in 
a measure, political independence. The tariff prin- 
ciple propounded with such conclusiveness by Fred- 
erick List and adopted by Alexander Hamilton for 
cur own country, as the principle of industrial and 
generally economic education, is sound and will al- 
ways retain its value. This principle of protecting 
and rearing to maturity and self-reliance the nascent 
industries and all the resources of a country is a nec- 
essary complement to the development of civilization 
and culture of a nation, and is, for most industries, 
only a temporary expedient. The principle of pro- 
tection is supplemented by the other principle, "from 
protection to free trade." 

370. Is this latter principle "from protection to free trade" 

universally applicable from a wise economic view- 
point? 

No. For even when the tariff has accomplished 
its work it is not wise to expose to free foreign com- 
petition all industries, especially not the basic and 
most essential industries of a country, least of all 
agriculture and the great staple industries of the 
minerals and coal, nor those industries which absorb 
a great volume of capital and labor, and whose con- 
servation is of greater lasting benefit to the country 
than cheap prices on foreign goods. (The disastrous 
consequences of undeveloped economy and one exces- 
sively dependent on foreign imports was probably 
never more convincingly demonstrated than in the 
South where "cotton was king" and ruined the coun- 
try and made it helpless. It is contended by more 
than one authority that the South was not van- 
quished by superior numbers but by its own un- 
naticnal and un-rational economy.) 



FORE.XJN TRADE AND TARIFF POLICIES. 117 

371. Which is one of the great evils even of a, rational pro- 
tective tariff? 

The uncertainty of its endurance. This uncer- 
tainty places capital invested in protected lines of 
production at great risks, and the risks are the 
greater the higher the tariff had been. Hence the 
unwisdom to make the tariff policies in a country a 
political party measure, which is at the mercy of the 
opposing parties as soon as they get into power. The 
tariff policies of any country are as universally na- 
tional an affair as any policy of statesmanship, for 
tariffs indirectly affect the entire people. The losses 
impending to capital invested under tariff protection 
are the greater the more unfair or excessive the 
business interests have asserted themselves in the 
policies from which the tariff sprang. The success 
or failure of great industries, and the loss or reten- 
tion of great values stabilized in non-liquid forms in 
protected industries are often dependent on a change 
of administration and, even, on the commercial or po- 
litical interests of a comparatively small group of 
men newly in power. "Whether it actually produces 
corruption or not, it furnishes a powerful motive for 
subscription to campaign funds, and a temptation to 
corrupt practices. The less the average congressman 
understands the needs of business, the greater is 
the danger that his vote may be shaped by the re- 
sults of improper influences, even when his own per- 
sonal character is above suspicion. With legislatures 
as they are actually constituted and elections as they 
are actually managed, the danger to popular govern- 
ment as a whole, arising from this source, outweights 
the good which can be expected to result from the 
application of protection for the sake of diversifying 
industry." Prof. Hadley, Yale, "Economics." The 
remedies for the evils here alluded to will be found in 
divorcing the tariff policies of a country — especially 
ours — from party politics (a task, indeed, more dif- 
ficult than the curbing of the trusts, considering the 
lobbying abuses in our politics), in shaping the tariff 
policies upon the advice of business experts from 
every branch, the chambers of commerce of the 
country and representatives of the great mass of in- 



118 FOREIGN TRADE AND TARIFF POLICIES. 

vestors and consumers, and in a gradual reduction or 
total abolition of tariffs. 

372. Does the protective tariff equally benefit capital and 
labor? 

First, it should be noted that the tariff benefits 
capital and undertakers in a very various degree, ac- 
cording to the more or less favorable conditions under 
which the various plants and undertakings produce 
or carry on their business. Secondly, protection is 
designed and is capable of benefitting both capital and 
labor and, especially with regard to labor, the tariff 
assumes the character of a restriction of immigra- 
tion of foreign labor. In many of our past congres- 
sional and presidential campaigns the benefits to be 
derived from the tariff for the American laborer have 
been popularly phrased in the campaign slogan of 
"the full dinner pail." The fact being, however, that 
some of our great and most protected industries have 
permitted rather scant advantages to accrue to their 
employees from the tariff under which these indus- 
tries thrived (textile and the steel industry, for in- 
stance). The measure of profit of the tariff to the 
laborers so protected will depend on the nature of 
wage and labor laws (minimum wage, prohibition of 
child and women labor), on the relative strength of 
employers' and labor organizations, the standard of 
living adopted and demanded by the laborers, the de- 
mand for the protected commodities, and the more or 
less favorable conditions under which the single pro- 
tected undertakings operate. The fact cannot be de- 
nied that the benefits flowing from the tariff in 
our country have far more, relatively and absolutely, 
been on the side of capital rather than of labor. 

NOTE — The advantages afforded by, or expected from, a system of 
protective tariffs, no matter how necessary or economically perfect 
that system may be in the concrete, are not unalloyed with economic 
disadvantages. No tariff can be constructed, or is even conceivable 
which would not in some way react unfavorably upon some interests 
in the protected country, even when these interests are themselves 
protected. For instance textile industries when simultaneously pro- 
tected with steel industries will suffer in consequence of more costly 
steel and machinery; even particular textile plants, more favorably 
situated than .other textile plants in the same country will suffer 
through protection in that protection will cause more capital to go to 
other plants less favorably situated but now strengthened through 



FOREIGN TRADE AND TARIFF POLICIES. 119 



protection; protection for lumber, furniture and mining industries will, 
relatively, bring more benefits to lumber than to furniture and mining, 
because, on the one hand furniture industries will have to pay higher 
prices for lumber and coal and steel than if; there had been no pro- 
tection and mining, also, will have to pay higher prices for lumber 
than without protection. Industries for which the natural conditions 
in a country are utterly lacking or too scanty should, of course, not be 
protected — as for instance, if a country entirely without coal en- 
deavored to protect its steel industry; or a country affording only 
slight opportunities for growing cotton attempted a protection of cot- 
ton textiles. The decision of a country for protection or free trade 
cannot and should not be rendered on the basis of purely abstract 
theories but on the basis of actual conditions obtaining in a country. 
Doubtless, free trade is being favored considerably by the perfect means 
of communication and transportation of our time, and its adoption 
would eliminate one of the most troublesome and pernicious elements 
of rotten party politics, of lobbying, of bribery and legislative partial- 
ity from many a state. Nor, even, with studious partiality eliminated 
is a tariff system, that would be objectively beneficial to all con- 
cerned, possible. Again, even where free trade had been in existence, 
a protective tariff would become indispensable in the event of the 
sudden rise of a strong foreign competition which would imperil the 
investments and the social welfare of a considerable portion of the 
people or the existence of important industries. Nor does protection 
appear unreasonable as a reward for extensive burdens borne by 
industries in the form of costly safety appliances and laborers' wel- 
fare work, or burdens of industrial insurance shouldered by the in- 
dustries of one country and not at all, or not equally so, taxing their 
competitors in other countries. It should furthermore be borne in 
mind that the tariff, be it ever so extensive and universal, does not 
directly affect the wages of many millions of laborers in a country 
establishing the tariff. For instance, as early as 1880, 7,299,000 farmers 
were not directly so affected, nor were the 5,884,000 producers engaged 
in transportation in the United States or in professional and personal 
services; nor were the 2,216,848 bread winners in 1880 (and millions 
more at the present time), to-wit: bakers, blacksmiths, plumbers, 
masons, carpenters and nearly all the decorating and house-work 
trades, because their work is done in the country and the identical 
work of the same trades of foreign countries is done at home, and is 
not in competition with the work of our own trades as here set forth. 

373. Mention some forms of protection or assistance given 
to American trade and capital in our colonial history. 

The Colonial governments assisted tradesmen and 
undertakers by direct grants of money (subsidies, 
not loans) and by loans; exemptions from taxation 
was granted to stimulate investments of capital in 
industry, thus Virginia exempted all persons and 
property devoted to mining and smelting iron; boun- 
ties were offered and given for the construction of 
textile mills, in one case "3 pounds for the finest and 
best piece of linnen, 40 and 20 shillings for the second 



120 FOREIGN TRADE AND TARIFF POLICIES. 

and third best"; "the Pennsylvania legislature in 
1788 awarded 100 pounds for a person who intro- 
duced a machine for carding cotton" ; skilled laborers 
immigrating into certain districts were given rich 
bounties in land and money; legislative provisions 
were made for securing cheap raw material; monop- 
olies for a certain term of years were granted to cer- 
tain undertakers. Protective tariffs were established 
between the Colonies themselves even to the time of 
the adoption of the new Constitution in 1787 (by 
which the power to regulate commerce and pass tariff 
laws was restricted to the federal government while 
all inter-state tariffs in the United States were auto- 
matically declared void and were abolished and pro- 
hibited.) The protection of the industries which had 
sprung up during, and under the pressure of, the 
Revolutionary War, was immediately taken up by the 
first administration under the constitution of 1787. 

[The American Constitution drafted and adopted, though not yet 
ratified, in 1787, was originally drafted in its larger scope by Pelatiah 
Webster, a merchant, financier and economic thinker of Philadelphia, 
and was published in 1783. It served as the basis for the deliberations 
and proceedings of the memorable assembly of statesmen in the Con- 
stitutional Convention. Our Constitution, entirely 'devoid and free of 
the patriotic effusions of the Declaration of Independence and of that 
entire era, is a sober, stern business document, conceived and elabor- 
ated by men of business and keenly alive to the economic demands of 
the times. It is a monumental protest, in all its. business sternness, 
against the reckless, haphazard, arbitrary and ruinous economic state 
and legislation by the thirteen states, and is, aside from its constitu- 
tion of the government and the construction of the liberties or immun- 
ities of the citizens of the United States, a purely and wisely framed 
economic document. The economic content and spirit of the consti- 
tution is particularly pregnant in Article I, Section VIII, containing 
the powers of the congress with respect to domestic and to foreign 
trade, taxes and tariffs, bankruptcy and the monetary system and its 
uniformity throughout the United States, coinage and counterfeiting, 
post-offices and post-roads, patents, copyrights and the advancement of 
industry and art, security of trade, and piracy; and in Section X, for- 
bidding separate trade and other treaties between the states and be- 
tween the single states and foreign states; the obligation of contracts, 
and as to legal tender. Also Section IX with regard to interstate trade, 
etc.] 

374. Give a brief survey of the principal tariff legislations 
in the United States. 

(a) The first general tariff law passed in 1789, with 
moderate protection for some American industries averaging 
only 8% per cent of the value of the articles; 



FOREIGN TRADE AND TARIFF POLICIES. 121 



(b) Until July, 1813, twenty-four more tariff laws were 
passed, being, however, more of a financial than of a protec- 
tive character; 

(c) The full acceptance of the principle of protection 
was given expression in the high tariff of March 20, 1816, lay- 
ing imports of 25% ad valorem on linen, woolen, cotton, 

metal, porcelain, glass and other goods, etc., and 30% on 
finished clothing; 

(d) Despite the deep resentment of the South the policy 
of protective tariffs was persevered in and the tariffs were 
considerably raised on iron, 1818, on wool and cotton, 1824, 
1825 and 1828, in which latter year raw wool, hemp, flax, coal 
and other rawstuffs were heavily protected; in 1833 a reduc- 
tion on which tariffs was effected on account of the Nullifica- 
tion Act of South Carolina and its threat of secession; 

(e) The gradual reduction provided in the tariff law 
of 1833 (Clay's compromise) was not entirely executed and 

1842 saw a return of high tariff policy. The temporary re- 
duction of these high tariffs brought about by the free-trade 
(Democratic) administration of Tyler since 1844, became un- 
popular on account of the severe industrial crisis of 1857 and a 
return of high tariff policy was signalized in the Morrill 
tariff of 1861, supplemented by the Civil War tariffs of 1862 
and 1864. 

(f) In 1867 wool and woolen goods, in 1869 copper ore 
and copper tariffs were increased, while the reduction of 
some tariffs in 1872 was repealed in 1875. 

(g) The McKinley tariff (McKinley was chairman of 
the committee of Ways and Means committee of the House) 
of October 1890 was the high water mark of American tariffs 
until then, increasing duties on agricultural products, wool 
and woolen and cotton goods, on tin plate and other articles, 
while steel and other self-reliant staple tariffs were reduced. 

(h) Cleveland's Administration, on account of a refrac- 
tory congress, ill succeeded in the proposed reduction of the 
tariff in the Wilson Tariff Bill of 1894. 

(i) The Dingley Tariff of 1897 in McKinley's administra- 
tion was a revision of the tariff of 1890 upward. All goods im- 
ported on other than American vessels are subject to an ad- 
ditional tariff of 10 percent, unless these ships, by treaty or by 
congressional action have been put on a basis of equality with 
American bottoms. No goods may be imported on non-Amer- 
ican vessels, or on vessels of the country where the goods 
originated or of the country whence such goods have been 
usually imported, a navagation act which, however, applied 
only to such countries which maintained the same restrictions 
against American imports. Coastwise shipping is restricted 
to American vessels only, and the import of cattle is prohib- 
ited. The import of commodities entirely or partly produced 
by prison labor is forbidden. Materials for ship construction 
may be imported under control if they are destined for ships 
of foreign countries, or for American ships provided these 
ships shall include in their trade routes Atlantic and Pacific 
ports of the United States. 

9 



122 FOREIGN TRADE AND TARIFF POLICIES. 



(j) The Payne- Aldrich Tariff of 1909 restored hide* 
(dutiable since 1897) to the free list, reduced duties on numer- 
ous articles including iron, steel and refined sugar, but con- 
siderably raised other duties, especially on textile goods and 
generally disappointed the great demand of the country for a 
revision downward. The tariff of 1913 placed sugar and wool 
on the free list, effected a broad revision of the tariffs down- 
ward and marks the most incisive change of high tariff policy 
since the Civil War. 



CHAPTER XIV. 

DISTRIBUTION. 

Article 1. 
PRIVATE PROPERTY. 



(NOTE. The ethical problems involved in the actual 
process of the annual or periodical distribution of the pro- 
duct of the national economic energy are not treated in this 
book on Political Economy. The processes of distribution 
are here given merely as the result of the working of actual 
economic capitalistic conditions. What is here intended is 
merely to treat of, and to answer, the question: how does 
economic distribution take place and by what factors is it 
determined, not : how should distribution be made according 
to the demands of ethics and justice. The ethical phases of 
distribution, that is, the problems of a just rent, a just in- 
terest, a just undertaker's profit, and a just wage are part 
of the science of Social Politics. The inclusion of a brief 
treatise of the institution of Private Property appeared as 
apposite under the present chapter as it could have been 
under any previous sub-division of this book. A treatise of 
the Family, as the fundamental institution of all social life, 
also, has been deemed more in place in Social Politics and in 
Political Science, than in the present catechism of Political 
Economy. Social Insurance, emphatically a problem of So- 
cial Politics, has no legitimate place in the present book. 
See Foreword to this book.) 

123 



124 PRIVATE PROPERTY. 

375. Mention the great social institutions on which the so- 
cial economy of a nation must be based. 

The institutions of private property, the right of 
inheritance, the family, the state. 

376. What is property? 

Property is complete rightful dominion of a per- 
son over a material object. 

377. What is the peculiar import of property right? 

Property right is the nucleus and center of all 
private right. "It is the totality of the legal rules 
determining the rights of use and the prohibition of 
use, for individuals and for social organs, of the ma- 
terial things of the exterior world." Schmoller. 

378. Is property right merely of legal (human) origin? 

Property right is founded in Natural Law, and 
it is prior to any state organization or state power; 
erroneous theories on property right and its origin 
were held by Hobbes, Rousseau, Bentham, Montes- 
quieu, Miralbeau, Anarchists and others. 

379. Why is property right a right by Natural Law? 

Because the individual human being, prior to and 
independently of, any state organization is vested 
with the natural right to his economic maintenance, 
security, perfection, and self-culture, which purposes 
cannot be secured for the vast majority of men with- 
out private property. 

380. Has historical research shown property to have been 
an ancient institution? 

Yes, and its existence has been satisfactorily 
traced back and proven for the ancient states of Baby- 
lonia, Assyria, Egypt (the accurate surveying of the 
soil of the Egyptians to fix the property boundaries 
after the inundations from the Nile) and among the 
Israelites. 

381. To what extent has collective property, that is, prop- 
erty owned in common by communities, been proven 
to exist in ages past? 

Collective property, even in land, has by no means 



PRIVATE PROPERTY. 125 

been shown to have been universal in prehistoric 
times. ''Nor has it been proved that in a single in- 
stance collective ownership had acquired the char- 
acter of a permanent and universal institution in any 
known people which attained to a higher stage of 
civilization. This fact which Evolutionists (on the 
origin of property) cannot dispute suggests the in- 
ference, that precisely collective ownership must be 
regarded as a hindrance to the development of a 
higher civilization." Pesch, I. Comparative Juris- 
prudence and the methods of historical analogy had 
one time asserted the prevalence of collective owner- 
ship of land for many centuries under investigation, 
for: Germany, Denmark, Hungary, Afghanistan, 
Highlanders, Slavs, Albanese, Russians, ancient Italy, 
Peru, Mexico, China, India. The erroneous conclus- 
ions arrived at by these methods has been effectually 
refuted by the noted German economic historian von 
Below. See also Philopipovich, I. 

382. Is property right an absolute right? 

No, it is not an absolute right, but dynamic, 
that is, it is subject to extension or restriction by 
the authority of the state or of a lesser community 
for the sake of the common good. 

383. Upon what double basis does property then rest? 

Upon the Law of Nature, ordained by God, fun- 
damentally and primarily ; secondarily property right 
rests on the positive law of the state. That is, while 
property right is God-given, the legal use and limita- 
tions of property right originate from the state power 
and its positively (human, historical) legal order. 
(Pope Leo XIII on Property in Rerum No varum, May 
15, 1891; Apostolici Muneris, Dec. 28, 1878). 

384. State the import of the right of property in its larger 

economic and social scope. 

Private property is one of the most powerful in- 
centives to work. Without it no progress, no civiliza- 
tion, no human self-perfection. No production is pos- 
sible unless the producer (at least some producer) 
has exclusive authority to employ the factors of pro- 
duction for his productive process. Property in the 



126 PRIVATE PROPERTY. 

economic sense is the totality of material goods be- 
longing to an economic unit and subject to it's con- 
trol to the exclusion of control by others. Juridically: 
Property is the title to the totality of material goods 
or to claims representing goods. The possession of 
property results not only in economic power and in- 
dependence of the owner, but not infrequently causes 
economic and social dependence, if not worse, for the 
laborer without property. Property controls produc- 
tion and its processes, tends to create, and today 
overwhelmingly has created, a relationship of de- 
pendence of those who do not own from those who 
own too much. The possession of property is one of 
the chief determining factors in the process of Dis- 
tribution, that is, in the apportionment of the annual 
product of a nation. The product itself is distributed 
to the landlords as Rent, to the capitalists as Interest, 
to the employers or undertakers as Profit, to the 
laborers as Wages. 

385. What is private property? 

Private property is such as belongs to an indi- 
vidual or to a private company or association (John 
Smith's house and the property of our railways or 
of the Steel Trust are private property). 

386. What is public property? 

Public property is such property as belongs to a 
public corporation (city, state). 

387. Is private property merely an economic category? 

By no means. Property and the problem of prop- 
erty are primarily social categories, that means, 
things of social importance. For property, in our 
present political and economical order, has become an 
essential complement to the legal freedom of person- 
ality, because through property the actual depend- 
ency of one person from another person is largely 
determined, that is, diminished or entirely eliminated. 
Hence, property and the legal order of property is 
one of the most important elements of our entire 
social order. "The legal order o fproperty is the legal 
regulation of the totality of relations between the in- 
dividual persons and social organs to the material 



INCOMES AND THE ANNUAL PRODUCT. 127 

world ; it determines according to the prevailing con- 
ditions of powers and of the prevailing moral prin- 
ciples, in the form of law, the distribution of land and 
mobile property to the individuals and to the social 

organs" (Schmolfer) . 

388. What is the right of inheritance? 

The right of inheritance is the right of the tes- 
tator (that is, the owner) to regulate and determine 
the transfer of his possessions after his death ; on the 
part of the legatee it is the right to enter upon the 
possesion of the legacy after the death of the 
legator. 

389. Why is the right of inheritance of economic re- 
levancy? 

Because it is an extension of the right of prop- 
erty beyond death, until now recognized, albeit with 
limitations, in our existing social order. 



Article 2. 
INCOMES AND THE ANNUAL PRODUCT. 



390. What, in last analysis, limits the possible maximum 
portions of income to be distributed to all members of 
an economy? 

Their common annual or periodical product. 

391. State the condition of a national economy, at rest> 
with a view to the possible national distribution of 
the common national product. 

The national economy viewed at a given moment 
will present the various persons, classes, agencies and 
producers as possessed of a definite sum of commo- 
dities: capital, consumptive goods, money, demands 



128 INCOMES AND THE ANNUAL PRODUCT. 

and claims (bills receivable, coupons due, notes, 
mortgages or other titles to money-payment from 
others), and it will also show them burdened with 
financial or other economic obligations (bills, cou- 
pons, notes, mortgages, and debts and obligations pay- 
able) toward others. Whatever be the share of each 
individual in the total wealth, total claims, or total 
indebtedness as against others, at any given moment 
in the year, is the result of the distribution of goods 
and represents, in a measure, the degree to which 
they may be able to satisfy their daily wants. The 
shares and claims belonging to each one are the re- 
sult of their economic or other activities and the 
gain, profit, rent, salary or wage received by them. 
The measure of the satisfaction of their wants is 
determined by their income, their income is the basis 
of economic class distribution in society. Hence, it 
is a question of paramount importance how these 
shares in the annual produce are produced, or rather, 
how they are divided, and how they are determined 
as to size and value ... In the process of produ- 
cing the annual product millions have taken a part, 
some by producing the rawstuffs; others have pro- 
duced from these the finished articles (flour from 
wheat, bread from flour), while others have been en- 
gaged in selling the rawstuffs and the finished arti- 
cles; some have furnished the land, others the cap- 
ital (money), others the labor. They all demand a 
share of the common product of their common labor 
or other contribution (land, capital, risk and under- 
taker's capacity). 

392. In what form are these shares in the common product 
distributed? 

In the form of money, or at least in goods and 
services expressed in terms of money. And the money 
they have all received as a means of buying a share 
of the actual product, together with other claims that 
may not yet have been liquidated to them, represent 
the total claims the individual members of the na- 
tional economy have to the acquisition of parts of 
the total common product. (Part of the money and, 
consequently, part of the claims — that is purchasing 



INCOMES AND THE ANNUAL PRODUCT. 129 

p 0Wer to the total annual product is also in the 

hands of those who have not contributed directly to 
the product, as for instance the professions : lawyers, 
physicians, teachers, ministers, artists, actors, etc.; 
while others, who have in no manner whatsoever con- 
tributed, must also be fed and maintained from the 
annual product: infants, juveniles, the old and invalid, 
the military forces). The measure of the money in- 
come of all classes will determine the size and quality 
of the share they will be able to acquire of the total 
national product, and will determine, over and above, 
the measure of their saving of wealth. 

393. What is the annual income of a people according to 

Adam Smith? 

The gross income of all inhabitants of a country 
is the total annual product of their land and labor; 
the net income is that portion which they may use for 
consumption, minus the portion necessary for the 
conservation of their capital. 

394. In which double sense may we speak of the distribu- 

tion of the annual product? 

In the sense of the distribution of the actual, 
physicial product (so much food, clothing, etc. per 
person), or in the sense of the distribution of the 
value ... of the total annual product. 

395. For whom is the actual physical product a means of 
income? 

The actual physicial product is a means of in- 
come only for those who have produced it, but this 
physical annual product is not in itself the supply of 
goods from which incomes are derived. By the form- 
ing or making of incomes there are created claims on 
the part of the several individuals or organized eco- 
nomic units (companies, families, firms) to goods in 
general, which claims may result in the acquisition 
and consumption of parts of the actual physical an- 
nual product, but which need not necessarily be lim- 
ited to the consumption of the entire annual product, 
nor need necessarily include the entire annual product 
as their (the claims') content. (In other words, the 
salaries, wages, profits, rents and interest gained and 



130 INCOMES AND THE ANNUAL PRODUCT. 

paid in one year may buy more than the annual 
product, or they may be equal to the purchasing 
power of less than the whole product, or while equal 
to the purchasing power of the whole product, they 
may be not expended but partly saved) . The individ- 
ual incomes, therefore, are not limited by the annual 
physical product, but they are limited, many of them, 
by the magnitude of the value of the physical annual 
product. For the sum of all incomes of those who 
have contributed to the product cannot long continue 
to be greater than the money-value of the product, 
from which these salaries, etc., must be paid. The 
process of the distribution of the value of the annual 
product is this: 

From the annual product must be derived the in- 
comes of the undertaker, the capitalist, land owner 
and laborer, these who have contributed toward the 
mechanism of exchange (bankers, organs of trade, 
transportation, etc.) Besides, from the incomes of 
the economically productive people the incomes of 
all the economically non-productive people must be 
derived and paid. The incomes of this latter class are 
not so immediately (as of those economically produc- 
tive classes) so many shares in the real product, but 
they are titles to the acquisition of shares of that 
product. But even the economically non-productive 
have mostly contributed to the general result of the 
annual production through their talent, planning, ad- 
judication of the law, inculcation of honesty and 
morality, entertainment and pleasure (for the recrea- 
tion of the laborors and all the productively engaged, 
etc., etc.) Hence, what we call the annual national 
product is not alone a product of the actually produc- 
tive classes, but is a product of the entire social, legal, 
legal-economic organization of the people. 

396. What, then, is the distribution of the annual product? 

The distribution of the annual product is not the 
distribution of the product itself but of the value 
thereof, parts of which value are represented mostly 
in the money shares received by the classes and mem- 
bers of the national economy. 

397. In what sense does the annual product limit the vol- 



INCOMES AND THE ANNUAL PRODUCT. 131 

ume and value of the total incomes? 

In the sense that the real annual product is the 
only store or fund of consumptive goods produced by 
the national economy (all farmers, capitalists, under- 
takers, laborers and all other people have no greater 
fund of actual consumptive goods at their disposal 
than has been produced by them. The greater the 
store of actual goods, the greater will ordinarily be 
the single share' of these goods purchaseable by the 
money income of each member; the smaller the total 
actual store of goods produced, the smaller the actual 
single portion purchaseable by the several incomes in 
money) . 

398. Is the actual national product the only fund of con- 
sumption for those whose share of it is represented 
in money? 

No. For there may have been made savings from pre- 
vious annual products, and the own national product 
may be augumented by portions from foreign national 
products. 

399. What is the yield of the annual national production? 

It is the sum or quantity of goods produced, or 
the sum of values won, with the expenses of produc- 
tive power, the cost of production not deducted. 

400. What is the net yield? 

The net yield is the sum of goods produced, or 
the sum of values won, with the expenses of produc- 
tion or of exchange (trade) deducted — the net yield 
or income. 

401. If the net yield of a people of one million producers is 

$1000.00 per person will then the net national yield 
be one million times $1000.00? 

By no means, for the net national yield of a na- 
tional economic year or period is not obtained or as- 
certained by the mere addition of all the single net 
yields within that national economy. 

402. Explain what hi the net national yield. 

The national net yield differs from the sum of all the 
single net yields as much as the national wealth from 
the sum of all private wealth. (For instance, my pri- 



132. INCOMES AND THE ANNUAL PRODUCT. 

vate wealth may partly consist in $1000.00 of Liberty 
bonds ; a million other people have each $1000.00 Lib- 
erty bonds, the private wealth of all these together 
being aggregate values of Liberty bonds possessed 
between them. But all these and all other Liberty 
bonds taken together, while they constitute private 
wealth — that is, private claims to repayment of cap- 
ital and to payment of interest — do not represent one 
dollar of national wealth. Quite on the contrary. If 
all the Liberty bonds were destroyed in one day the 
national wealth of the United States would not be 
lessened by one cent, provided the bonds were owned 
in this country. The reason for this is because the 
Liberty bonds are not wealth, nor do they even rep- 
resent actual capital, but they are a debt owed to 
their holders. The destruction of American owned 
Liberty bonds would not impair the national wealth 
any more than the destruction of all mortgages held 
on American real estate would impair American 
wealth. For, Liberty bonds, while a source of in- 
come and a title for reimbursement (for money lent) 
by the private holder are no national asset but a na- 
tional debt. The destruction of a Liberty bond might 
even relatively increase the national wealth in as far 
as the sale of that bond to a foreign country would 
have increased the national liability to the foreign 
bearer to the extent of the face value of the bond 
plus interest. All Liberty bonds taken together do 
not represent as much national wealth as a single 
plowshare or a hoe upon our farms. They, like notes, 
mortgages, and other obligations are debts not assets 
in or to the nation). The national net yield, conse- 
quently, does not include the transfers of values from 
one economic unit to another in the economy (when 
my debtor, in the payment of his debt transfers to 
me $1000.00, this has not increased the national 
wealth, it has merely changed the position of a por- 
tion of that wealth. But when in liquidation of his 
debt the debtor raises several hundred bushels of 
wheat he has increased the national beside the private 
wealth). The national net yield or income always 
denotes an increase of actual goods, not a mere trans- 
fer. Hence all the transfers of value in trade and 



CLASSES OF INCOME. 133 

exchange within a nation do not increase the na- 
tional wealth, although the traders may individually 
and privately grow rich. But every new production 
be it raw-stuffs or new forms of utility increases the 
national wealth. National wealth is composed of act- 
ual goods within the nation plus the claims against 
other nations and minus the obligations or debts to 
other nations. National income is measured in the 
same manner. Hence the national income is the act- 
ual fund of consumptive goods produced within the 
nation or acquired from another nation (through in- 
vestments in another nation's economy for instance, 
which entitle the investing country or its citizens to 
a share 01 the income produced in the debtor coun- 
try). 



Article 3. 

CLASSES OF INCOME. 



403. What classes of income do we distinguish? 

(a) Private — belonging to individuals or to pri- 
vate associations, companies, families, stock compan- 
ies, trusts, etc., and public income belonging or ac- 
cruing to the public corporations: the city, county, 
state, national (all taxes, excises, duties, etc., are pub- 
lic income ; but the salaries paid to the president, the 
members of congress, the judges and all government 
employees are private income) ; 

(b) Natural and cash income; 

(c) Nominal and real income. The nominal in- 
come being for instance $5.00 wages per day, the real 
income being the actual sum of goods or services 
which the wage will buy; 

(d) Gross and net income, that is, expenses of 



134 UNDERTAKER'S INCOME. 

production, of the conduct of business, etc., not de- 
ducted or deducted, respectively; 

(e) Founded income which is derived from prop- 
erty (land, the loan of one's capital for interest) or 
from the economic gainful use of capital (the income 
of the banker in th eform of interest gained on the 
moneys of his depositors loaned out to others), or 
non-founded income, not founded on the possession 
or use of property — labor wage; 

(f) The politic-economic forms of income: 
undertaker's profit, the capitalist's interest, the land- 
lord's rent, the laborer's wage. 

(g) Originary and derived income; originary 
incomes being all those accruing from an actual part 
taken in the productive process; the derived incomes 
being incomes gained from a non-productive occupa- 
tion (the dramatist's or poet's, lawyer's, teacher's, 
etc.,) is from non-economic activities. 



Article 4. 
UNDERTAKER'S INCOME 



404. What is the undertaker's income? 

It is the surplus of value from the price of his 
product over the values consumed in the productive 
process, or in the process of sale, if the undertaker 
is not a producer but a trader. 

405. What elements compose the undertaker's income when 

he is also laborer, and the owner of his capital (for 
instance a shoe manufacturer who himself directs 
the business and owns the plant and the money paid 
for fixed and floating capital — wages)? 

The income of such a laborer — capitalist — un- 



UNDERTAKER'S INCOME. 135 

deitaker consists of: (a) undertaker's wage; (b) 
profit in capital employed; (c) undertaker's gain, 
which is the eventual surplus over his wage and cap- 
ital profit. When the undertaker's income is not 
equal to the normal wage for similar work plus in- 
terest on his capital then there is to be recorded the 
undertaker's loss. The distinction of these elements 
of the undertaker's income is of import for the com- 
parisons between "profitable" and "less" profitable 
lines of production, investment and undertaker's 
skill and energy. (The founder of the Krupp works, 
Jim Hill, builder and president of the Great North- 
ern Railway and many others were the directors of 
their own undertakings and drew the undertaker's 
wage income plus their profits and undertaker's gain. 

406. On what does the size of the undertaker's income de- 
pend? 

It depends in every instance on the difference of 
the cost of production and the price of his product on 
the market. In particular the undertaker's income 
depends on: 

(a) The degree of the risk ; for the greater the 
risks in an undertaking the fewer the number of 
those who will enter that line of production, and con- 
sequently, the less the competition the greater the 
gain if the undertaking is successful; 

(b) His income is also dependent on the rate 
of interest he must pay on his capital or on the in- 
terest he might have achieved on his own capital if 
elsewhere invested; 

(c) On the legal and social-technical conditions, 
such as: monopolies, the distribution of wealth 
(which determines the greater or lesser number of 
persons that may become undertakers), the organiza- 
tion of production on a large or small basis. (The 
more profitable an undertaking, the more will embark 
on it, the more keen the competition, the lower the 
prices — witness the automobile and rubber tires in- 
dustry and numerous others). 



136 INCOME FROM PROPERTY. 

Article 5. 
INCOME FROM PROPERTY 



A— RENT. 

407. What is rent? 

Rent in general is the revenue derived from the 
soil by the owner thereof. 

408. What is rent in the stricter sense? 

Rent in the stricter sense is the additional rev- 
enue derived from the soil owing to peculiar prop- 
erties, fertility, forces or virtues in the soil or owing 
to its peculiarly favorable location as a source of rev- 
enue. This is rent in the stricter sense. Rent in the 
former, wider sense, is revenue from the lease of 
one's land to another user. 

409. Why is rent of importance in the national social econ- 

omy? 

Because rent is the revenue of a very large and 
powerful economic-social class and because the abuse 
of the power possessed by the landlords has had, and 
has, much to do with the social struggle of the non- 
landholders. 

410. Does land yield an income by and from itself alone? 

No. Land yields revenue only in connection with 
capital and labor (the richest mines and the most 
generous gas and oil wells will result; in no revenue to 
the owner of the land except at cost of capital and 
labor, the amount of which varies per unit of product 
from the mine or well according to many varying con- 
ditions and circumstances). 

411. When does land yield rent in the narrower sense? 

Land yields rent in the narrower sense only when 
the revenue derived from it is so great as to exceed 
the normal gain or return from labor and capital ex- 
pended upon it. 



INCOME FROM PROPERTY. 137 

412. Why do we call rent in the narrower sense "differen- 

tial" rent? 

Because it includes and denotes the difference 
of revenue between the normal and the supra-normal, 
or the difference between the lesser and the greater 
yield of two different qualities or positions of land. 

413. From which causes does differential rent originate? 

1. From the varying degrees of fertility of the 
single tracts of land. Rent from the difference of 
soils in point of fertility will originate as soon as the 
demand for the products of the soil has become so 
great as to make it necessary to cultivate also the 
poorer lands and to wrest something from them, even 
if it has to be done at a great cost of labor and fer- 
tilizer. Then, the better lands, producing at a lower 
cost of capital and labor will bring a rent, that is, 
their products will be sold at a price just as high as 
the products raised at greater cost on the poorer 
land, because there is a demand for all the products, 
as well those from the poor and those from the rich 
lands. The difference of the cost of production on the 
poorer and the better land will bring a different (i. e., 
greater) profit to the owner of the better land. The 
difference of profit in the sale of the product from 
the better land is called the differential rent. 

2. Rent may also originate from the fact that 
the capital and the available (more intelligent, better 
disciplined and more conscientious) labor used on one 
piece of land is more productive than capital and 
labor expended at the same cost on another, equally 
good soil. 

3. Rent may originate from the fact of a more 
favorable position of a plant to the market or to the 
rawstuffs (a steel works in Pennsylvania will easily 
bear a rent over a steel works, however perfect and 
up-to-date in Minnesota, en account of the greater 
proximity of the Pennsylvania plant to the rawstuffs : 
Coal and iron. A restaurant located on a busy street 
will bear a rent over one situated in a place less favor- 
able and less convenient to the patrons. Truck gar- 
dens near Chicago bear a rent over truck gardens 
equally expensive whose products are yet needed and 

10 



138 INCOME FROM PROPERTY. 

imported into Chicago — for the proximity of the Chi- 
cago gardens will enable them to make a rent, that 
is, charging the same price as the distant-grown 
products plus the freight charges of the latter. The 
rent of the Chicago gardens will be at least equal to 
the freight expense of the products from the dis- 
tant gardens. This differential rent resulting from 
superior advantage of position near the market or 
the rawstuffs, is realized from lands irrespectively 
of their use for agricultural, industrial or trading (a 
store on the main street of a town) purpose. 

4. Finally differential rent may originate from 
such an increase of population with which the in- 
crease in the means of subsistence cannot keep pace. 
Such a condition will result in a competition between 
the buyers of the products of the soil to such a de- 
gree as will raise the price of products raised even 
upon poor soil at great cost beyond their normal 
price and bring a rent to these poor soils. 

414. Is rent a result or a cause of high prices of products? 

Rent is always a result of the high price of prod- 
ucts, never a cause thereof, and it is always a dif- 
ferential income. 

415. How do we arrive at a recognition of rent? 

Since rent is only the differential between the 
cost of products raised on one soil as against the 
cost of products raised on a less favorably located or 
a less fertile soil, it can never be ascertained or rec- 
ognized in itself, but only by comparison with the 
incomes from other soils. 

416. What three classes of differential rent do we distin- 
guish according to the foregoing? 

Rent of agriculture, rent of industry (also of 
mines), rent of position. 

417. Where does rent of position assert itself most? 

In the cities (for housing and trading purposes) , 
where the vantage position of land often is an insur- 
mountable monopoly. 

418. Which modern factor tends to destroy the monopoly 
position and the consequent rent of city land? 



•INCOME FROM PROPERTY. 139 

Our means of transportation, by which cheaper 
land outside the city, yet easily accessible by fast 
means of transportation, enters into competition with 
the dearer land of the city, especially for residential 
purposes. 

419. What is the significance of rent for private economy? 

Rent is a source of additional income to the pri- 
vate economic unit (business man, owner of rented 
house, store, factory, etc.) 

420. When is special attention paid to the existence of rent 
in a piece of property? 

In the sale of property. For the seller of a prop- 
erty bearing- rent, will capitalize this rent and by so 
much increase his price of sale on the property. 
(For instance, a house worth $100,000 bearing a nor- 
mal capital profit — or rent in the wider sense — of 
$5,000.00 may in sale achieve a price of $120,000 if 
the seller has, in consequence of the scarcity of soil 
and houses and in consequence of the competition of 
renters been able to collect $6,000.00 in rentals. The 
additional $1000 of rental, capitalized at the assum- 
edly prevailing rate of interest on capital of 5 per 
cent represent the interest on a capital of $20,000 
loaned at five per cent. If the seller of the house which 
bore him that differential rent of $1,000.00 per an- 
num can dispose of the house at the capitalized value 
as here set forth, then the house will bear the buyer 
no differential rent any more, because the $6000.00 he 
will be forced to collect in rentals represents nothing 
but the normal interest on his capital invested in 
the house at the time of its purchase. Moreover, the 
buyer of the house, in order not to lose, will have to 
keep the rental of the house at such a price as will 
yield him $6,000.00, but what he draws is nothing 
but interest on his capital with absolutely no differ- 
ential rent. 

421. What, then, does rent effect for the private economic 

unit? 

It effects a greater income and is a source and 
means of accumulating or increasing the value of 
private wealth. 



140 INCOME FROM PROPERTY. 

422. What is the harmful effect of rent from the national 
and social viewpoint? 

Rent increases prices and (see the example of 
the house sold at a capitalized price of the differential 
rent) has a tendency to maintain high prices to the 
detriment of the masses and society at large. 

423. Can differenital rent be avoided? 

No. For differential rent is the result of the 
estimate and valuation of the products of the soil, 
which valuation necessarily increases with every in- 
crease of population. 

424. Who are among the early economists writing on the 
subject of differential rent as an income from better 
soils as against poorer soils? 

The English economists Anderson, Malthus and 
Ricardo all living in the last quarter of the 18th and 
in the first half of the 19th centuries. (The rent of 
position, that is the most favorable position of land 
or of a plant to the market, was shown first by John 
Henry von Thuenen, 1785-1850, Oldenburg, in his prin- 
cipal economic work "The Isolated State." 

425. What proposals have been made to eliminate differ- 

ential rent as an income not based on economic merit 
( unearned increment ) ? 

It has been proposed (a) to confiscate this un- 
earned increment by taxation (thus Wolfcof, Opus- 
cles sur la rente fonciere, 1854; and Henry George, 
the American land reformer in "Progress and Pov- 
erty, 1880.) See the excellent discussion of the "Sin- 
gle Tax," the refutation of George's doctrine, and the 
case of Dr. Edward McGlynn in "The Fundamental 
Fallacy of Socialism," by Arthur Preuss, 1909; 

(b) It has been proposed to make the soil com- 
mon property of the state. 

426. What can be said in general of the practicability of 

these proposals? 

The differential rent cannot be evaluated in it- 
self and is part of the total product of the soil; but 
the total product of the soil is also partly a product 
of labor and capital. To confiscate the differential 
rent of the land would involve the partial confisca- 



INCOME FROM PROPERTY. 141 

tion of capital and labor. Nor would this confiscation 
of the soil prevent the rise of new rent at a later 
time. But even if the community were to profit 
from this confiscation, the community would also 
have to bear the eventual depreciation of the soil 
and the financial losses consequent thereupon. Lastly, 
the acquisition of the soil by the state if effected on 
a basis of full compensation to the private owners 
would involve such sacrifices for the community that 
little would have been gained, nor can the exploita- 
tion of the soil, owned by the state ever result in 
such beneficent results to the national economy as 
under private ownership. 

B— INTEREST. 

427. What is interest? 

Interest is that portion of the yield from a 
productive process or from an exchange transaction 
(the sale of textiles, shoes, furniture, etc.,) which is 
attributed to the capital which was used in that pro- 
ductive process or business transaction. (For in- 
stance : in figuring, at the end of a business year, the 
gains and losses of his undertaking, the business 
man will try to ascertain not only whether he has 
been compensated for his rawstuffs in which he in- 
vested $10,000; for his wages paid to laborers, 
$10,000; for his own labor, $2,000; for the wear and 
tear of machinery, etc., but he will also have to ascer- 
tain whether over and above this return of values 
invested he has also "made" enough to repay him the 
interest on this capital, say at the current rate of 
5%. If the total value of the plant, the rawstuffs, the 
labor wage in a given business year was $120,000 then 
the business man must try, to avoid eventual bank- 
ruptcy, to secure not only a return of all the value 
invested in rawstuffs and wages, $20,000, but also 
the yield of interest on this sum and on his plant. 
The reason is, that if his business did not yield him 
also the current rate of interest on the $120,000 of 
the total capital of that year, he might just as well 
have stayed out of business and have invested his 
capital in some other, or in some other undertaker's 



142 INCOME FROM PROPERTY. 

business at the rate of interest then prevailing. Much 
more so, if he used not his own capital, but the cap- 
ital of some money lender, on which the undertaker 
always must pay interest. 

428. What is capitalization? 

Capitalization is the process of reducing the in- 
terest yield from an undertaking of any kind in which 
capital is invested to the amount or value of the cap- 
ital itself, thus ascertaining the yield value of a 
given piece of property. (If a house I have let brings 
me annually $1,000.00 rental, with taxes and normal 
repairs paid, and if the prevailing rate of interest 
on loan capital is 5%, then the investment value of 
my house is at least $20,000. For in order to achieve 
a yield of $1000 in interest paid to me I should have 
had to loan $20,000 to someone at that rate. 

429. Of what import is capitalization in the world of busi- 
ness? 

It makes possible a comparative calculation of 
the investment values of properties of different na- 
tures and is of decisive importance in the frequent 
shifting of capital investment from one line of busi- 
ness to another. 

430. What is a loan? 

A loan is the temporary surrender of goods or 
values on the promise of their return by the borrower 
at a specified time at a certain rate of interest. Loan 
on interest is a sort of purchase or exchange of pres- 
ent goods for future goods, to-wit: $1,000 today for 
$1,050 one year from date, the interest of $50 being 
the premium or compensation paid for the surrender 
of present use for use one year after date. 

431. Which factors determine the rate of loan interest? 

On the part of the borrowers the price of the 
loan is determined. 

(a) By the number of borrowers or the sum of 
money asked ; 

(b) By the valuation of the capital, that is, by 
the value the loan capital to the borrower. This val- 
uation is determined by the quantity of the capital, 
the length of time for which loaned, the easy or hard 



INCOME FROM PROPERTY. 143 

terms of repayment and the prospective lucrative or 
less lucrative uses to which the borrower intends to 
devote the loan; 

(c) The economic ability of the borrower to re- 
pay (a reliable and solvent borrower will get cheaper 
loan money than a borrower less reliable and less solv- 
ent). 

432. What determines the price of loan money on the side 
of the lenders? 

(a) The degree of sacrifice involved in the loan; 

(b) The security given for the return of the 
loan; 

(c) The number of the lenders and the quan- 
tity of loanable capital. 

NOTE — Interest in ancient times and in the Middle Ages was often 
exorbitantly high ranging from 4-10, from 20-43, 66 and even 108%. 
In the 12th to the 14th century interest in England was: mostly 20% ; 
Holland, when at the zenith of her commercial strength and financial 
development, toward the end of the 17th century had a rate of only 
2V 2 %. Short time loans are higher than long time loans on account 
of the loss of time and interest through repeated re-investment at 
short intervals. Prof. Bullock in his "Introduction" recalls that on 
October 29, 1896, the rate of interest on call loans in' New York was 
10%, at noon it rose to 50% annual interest, and before night to 80- 
100%. Loans in the Middle Ages were mostly loans for consumptive 
purposes, not for production, hence the church laws against interest 
Since the rise of the capitalistic era money and loan-money "fructify" 
through investment in production and trade, hence the reasonableness 
of interest that is not usurious. 

[According- to Hainish "Die Entstehung des Kapitalzinses," 1907, 
cattle is the prototype of capital (caput— a head of cattle) and of cap- 
ital's productiveness. The head of cattle loaned out to another brings 
a gain in its young, which in primitive economic conditions is reducible 
only to the capital — the cow, sheep, etc., itself; for labor and the 
abundance of free pasture played only a little, if any, part in the keep 
of the cattle, or was covered by the value and use of the cattle's milk. 
The calf was considered as the gain or surplus of the economy and 
was the yield or interest of the cattle-capital. The cattle-loan was 
followed by the grain-loan which, too, was productive, etc. See Phil- 
ippovich, I.] 



144 INCOME FROM LABOR— WAGE. 



Article 6. 
INCOME FROM LABOR—WAGE. 



433. Which forms of labor income do we distinguish? 

(a) The labor income of the undertaker; 

(b) The labor income of employees of the 
state whose salaries or wages are fixed by law and 
as a rule are not subject to competition; 

(c) The labor income of certain undertakers 
and their employees fixed by law or ordinances (fees, 
of lawyers, notary public, prices paid for concessions, 
etc., and 

(d) The labor income of those laborers whose 
wage or salary is co-determined by the factor of com- 
petition between the laborers and between the em- 
ployers who compete for their employment. 

434. Mention the chief forms' of wages. 

(a) Money wage and wage in kind or commo- 
dities, the latter having been more and more sup- 
planted by the money wage which, since the rise of 
the capitalistic era has become almost universal, ex- 
cept for domestic and farm-laborers who frequently 
draw both money wage and wage in natural goods; 

(b) Nominal and real wage is only a relation, 
not different forms of wages; and the relation ex- 
presses the relation of the nominal value of the wage 
money received to the purchasing power it has. 

435. Mention the various forms of wages according to the 

standards or criteria according to which wage is com- 
puted and paid to laborers. 

Time wage, piece wage, sliding-scale wage ; wage 
according to bonus system for quantity of products 
produced, for quality of products, for saving of time, 



INCOME FROM LABOR— WAGE. 145 

machinery and rawstuffs, for special carefulness in 
the avoidance of accidents ; profit sharing. 

436. Granted free competition which factors determine the 
rate of wage on the side of the employers? 

(a) The number of employers seeking laborers ; 

(b) The volume of labor required; 

(c) The employers' valuation of the labor de- 
sired. 

(d) The employers' valuation of the price of 
labor (money) ; employers producing under unfavor- 
able circumstances will value the price of labor, 
money, higher than their competitors who produce 
under more favorable circumstances ; the former will 
seek to secure cheap labor in order to keep up with 
their competitors. 

437. What determines the wage rate among the laborers? 

(a) The number of laborers seeking employ- 
ment ; 

(b) The sum total of their possible volumes of 
labor ; 

(c) Their valuation of the price of labor 
(money) ; 

(d) Their valuation of their own capacity for 
labor. 

(The skilled laborer whose capacity has been de- 
veloped at the price of a costly education will value 
his labor higher and will estimate a small wage less 
than an unskilled laborer; so will a married man with 
family responsibilities value his labor higher and a 
low wage less than the unmarried, etc.) 

438. From what fund directly are wages paid? 

Wages are paid from the fund of the undertak- 
er's profit. 

439. From what fund may the rise of wages ultimately be 
paid? 

The rise of wages or their increase is paid and 
ultimately borne either by the undertaker or by the 
consumers. 

440. What results when increase of wages are borne by 
the undertaker? 



146 INCOME FROM LABOR— WAGE. 

An increase of wages borne by the undertaker 
may result in driving the undertaker out of business 
and into another line of undertaking. When this hap- 
pens capital is withdrawn from the first line of un- 
dertaking and wages in the line will fall, especially 
when the capital withdrawn is re-invested in a for- 
eign country. 

441. What happens when increase of wages is borne by the 

consumer? 

When increase of wages is borne by the con- 
sumer the consumers' savings will decrease, invest- 
ment capital will be diminished in proportion and 
wages again will fall on account of a surplus labor as 
against opportunity for employment. 

442. How can increase of wages be maintained without im- 

pairing the profits and strength of the undertaker 
and without impairing the consumers' savings? 

By an increase of the rate of production, or, 
which is the same, by an intensified degree of the pro- 
ductivity of labor, for, all wages, salaries and rewards 
are lastly paid out of the fund of the total national 
output of production. Or, if the capital of under- 
takers driven out of business by an increase of wages 
cannot be invested to any large extent in foreign 
countries, the increased wage may be retained, the 
undertakers' profits and the consumers' savings will 
not be diminished but the rate of interest on loan 
capital will fall, for capitalists will rather invest at a 
low rate of interest than not invest at all. 

443. Why can a legal minimum wage in all industries and 

increases of wages promiscuously not be enforced by 
the state and organized labor, respectively, without 
detriment to the national economy? 

Because a universal minimum wage, and arbi- 
trary wage or exorbitant wage increases would 
weaken the undertakers and the home national labor 
in their competition with foreign undertakers and 
with foreign laborers working on a smaller wage 
basis, to offset which handicap a protective tariff 
alone could suffice, unless the foreign competitors 
would also adopt an approximatingly high wage basis 



INCOME FROM LABOR— WAGE. 147 

minus the cost of freight for exports. (See the Wage 
Fund theory, and the Iron Law of Wages in another 
chapter of this book) . 

444. By what is the general level of all wages ultimately 
determined? 

By the total product of the national economy, 
that is, by the total annual output of the labor of the 
nation. A part of this output accrues in the forms of 
rent, interest, undertakers' profit to other than the so- 
called laboring classes (every man who works with 
brawn or brains is a laborer). But the greater the 
output the greater will also be the share of the labor- 
ers. The real wage fund is the total annual product 
of a national economy. 

445. In what form are all incomes paid? 

In the form of money, or at least on the basis of 
a valuation expressed in terms of money. 

446. Does the money income determine and reveal in itself 

the size of the income and its value to the receiver? 

No. The value of the money income is ascer- 
tained by its purchasing power in the market of real 
goods. The true test of the value of the money in- 
come is tne quantity of goods it will buy. 

447. By what, then, is the real income of all receivers of 
income limited? 

It is limited indirectly by the existing possibili- 
ties of production, and immediately by the existing 
store of actual goods. 

448. Are the possibilities of production and the volumes 

of available consumptive goods stable quantities? 

No, they are in constant flux and change, owing 
to the increase or decrease of productive capital, of 
its productivity ; and on account of the constant flux 
and change of productive labor and of its produc- 
tivity ; they are lastly inconstant owing to the shift- 
ing of capital from one line of production to another. 

449. Are (differential) rent and undertakers' profit a part 
of the cost of production? 

No. Of all four forms of economic income (rent, 
undertakers' profit, interest and wage) only interest 



148 INCOME FROM LABOR— WAGE. 

and wage are part of the cost of production. A fall 
and rise in the cost of commodities is effected primar- 
ily by the latter two forms of income alone. — Rent 
may, secondarily and indirectly, cause a rise of prices, 
after rent itself has been caused by a rise of prices 
on the products of the soil in consequence of produc- 
tion on less fertile soil where production is more ex- 
pensive than on more fertile soil. Once rent has been 
capitalized (see the Article on Rent) this capitaliza- 
tion will affect prices and drive them upward. 

450. May the undertaker's profit be capitalized and then, 
also, affect prices in an upward direction? 

Yes. This happens in undertakings whose pro- 
duction is under the protection of patents, copyrights, 
or trademarks, or which through the exceptional 
reputation of the firm have acquired a quasi monopoly 
position in the market. The sale of such an under- 
taking to another often includes a price for the mon- 
opolistic advantages adhering to the undertaking and 
reacts on future prices as a capitalization of the un- 
dertaking's previous profits. The buyer of such an 
undertaking will strive to maintain high prices in 
order to make good the price he paid for the capitali- 
zation, in the same manner as the buyer of a piece of 
land or of a house has paid the capitalization of the 
rent (see Article on Rent.) 

451. What is the difference between the capitalization of 
the undertaker's profit and the capitalization of 
Rent? 

Rent capitalization and the consequent higher 
prices are more stable than the capitalization of the 
undertaker's profit and its consequent higher prices. 
The capitalization of the undertaker's profit can be 
eliminated or neutralized by a cessation of the arti- 
ficial state protection (the expiration or annulment 
of the patent rights), by changes in the technics of 
production, or by changes in the tastes of the con- 
sumer and of a decrease of demand, or by competi- 
tion on the part of superior management by other 
undertakings in the same line of production 



HOW INCOMES SHARE IN PRODUCT. 149 



Article 7. 

HOW ALL PRIVATE INCOMES SHARE IN 
NATIONAL PRODUCT. 



452. Which problem of Income touches the core of the^ 
present Social Question? 

The problem of an equitable income to all eco- 
nomic classes, or the problem of a more equitable dis- 
tribution of the annual national product. 

453. Why is the laboring class the group that is most con- 

cerned with reference to this problem of distribution? 

Because the laborers in their overwhelming ma- 
jority have no other income but that accruing from 
their labor and because even that source of income 
is frequently unproductive owing to unemployment. 

454. When the laboring population increases without an 

increase of productive capital, or without an increase 
of the productivity of existing capital, what is the 
result? 

Wages decrease, interest increases, and, owing 
to a greater demand for foodstuffs, rent will rise. 

455. When capital increases and population is stationary, 
what is the result? 

Interest falls, wages rise, but rent remains 
stable. 

456. When the productivity of capital is increased, while 
population and capital itself remain stationary, what 
will be the result? 

Prices in commodities will fall and, consequently, 



150 HOW INCOMES SHARE IN PRODUCT. 

the real income, that is, the purchasing power of 
money will rise. This condition may result even in 
a rise of nominal wages (besides the rise of real 
wages), and rent will rise on account of the greater 
demand for the products of the soil, caused by a rise 
in the productivity of capital. 

457. Population and capital being increased, or its pro- 
ductivity rising, what will result? 

In this case interest and wages will remain sta- 
tionary but rent will rise, on account of the greater 
demand for the products of the soil. 

458. What do these relations of income show? 

That there is a marked contrary tendency be- 
tween capital interest and labor wage, the one fall- 
ing when the other rises ; and that undertakers' 
profits and rent are not so opposed. 

459. What do income statistics show with regard to la- 
borers' incomes? 

They show that for the majority of laborers the 
incomes do not rise beyond the means of subsistence, 
or, at least, of a decent living wage without surplus 
for saving; that the small incomes, including those 
outside the laboring class proper, predominate, and 
that even with an equal distribution of all incomes 
from the total national annual product the incomes 
of all the people would not be very considerably 
raised. 

460. What practical inferences must be drawn from this 

economical-statistical fact? 

That not the mere raise of wages, nor even an 
entirely new scheme of management of the national 
economy — with all due regard for the much heralded 
Industrial Democracy — nor a new plan of distribu- 
tion will relieve the receivers of low incomes, es- 
pecially the lower strata of the laborers; but that 
the economic salvation of all concerned is in more 
justice, in more regard for man than for property 
rights, in more honest endeavor to do a day's work 
for a day's wage, in an increase of production, in 
the repudiation of the economic and social heresy of 



HOW INCOMES SHARE IN PRODUCT. 151 

a continually decreasing productive energy coupled 
with a disregard for the rights of capital and of the 
employer, in the cultivation of more thrift and the 
elimination of senseless extravagance on the part of 
many laborers and in a system of laborers' self -aid 
by mutual credit and other co-operative associations, 
especially co-operative rawstuff, sales and consumers' 
stores. (The moral and religious issues here in- 
volved are more appositely treated in Social Politics.) 



CHAPTER XV. 



CONSUMPTION OF GOODS. 

Article 1. 
GENERAL NOTIONS. 



461. Which factors continually diminish the existing sup- 
ply of goods — or wealth? 

Destruction by natural forces and decay, gradual 
destruction by frequent use and the systematic use 
(capital) or direct consumption of goods for the sat- 
isfaction of human wants. 

462. Why are all these forces and factors of destruction and 
consumption of essential import to the economy of a 
nation? 

Because the degree and extent of their opera- 
tion in the diminution of the nation's supply will help 
to determine the rate and extent of re-production, 
the volume of capital available for reproducing the 
consumptive goods, and the supply of goods available 
for consumption in the next economic period. For 
instance: the rate and extent of consumption of a 
nation's grain supply will determine how much grain 
will be available for reproductive purposes — seed, and 
how much, on the basis of the normal productivity of 

152 



CONSUMPTION OF GOODS. 153 

cultures, may be expected to be on hand to meet the 
demand of the consumers for the next consumptive 
period. Where only one harvest is reaped per an- 
num the consumptive period is one year, if we ab- 
stract from exports to foreign countries or from 
imports therefrom. 

463. What is economic consumption? 

Consumption in economics is the use of com- 
modities for the purpose of satisfying human want. 
It is the intentional and purposive destruction of 
commodities undertaken on condition that this use, 
resulting in immediate or gradual destruction, serves 
greater values and satisfaction than the possession 
of the commodities unimpaired and in their integrity. 
(The gradual destruction of costly machinery, of the 
fertility of the soil, of clothing, etc., and the imme- 
diate and final use — destruction of food — brings 
greater and more desirable results than their con- 
servation.) 

The immediate consumption (of foodstuffs, of 
certain rawstuffs like coal, although burnt in the 
productive process) is called final consumption; the 
gradual consumption of standing or fixed capital 
(factories, machinery, or raw-stuffs converted into 
new forms of utilities as cotton into fabrics, timber 
into houses, etc.) is called productive consumption. 

464. By what is the consumption of goods (limited? 

The consumption of goods is naturally limited 
by the supply of existing goods, plus the supply of 
goods that can be produced within measurable time, 
plus the goods that can be secured from a foreign 
economy. 

465. What determines the volume of the consumption of 

goods over a longer period? 

The available supply of productive capital, this 
supply being largely limited by the incomes of the 
economic units within the national economy. The 
demand for commodities results in higher prices, 
and higher prices offered for commodities are a 
stimulus for more production. 

11 



154 CONSUMPTION OF GOODS. 

466. Why must there be a well balanced increase and re- 
production of capital goods together with a repro- 
duction of consumptive goods? 

Because in each productive process which pro- 
duces productive goods (machinery for instance) as 
well as consumptive goods (flour, clothing, etc.) there 
is a consumption of rawstuffs (coal, iron, cotton, fer- 
tility of the soil) which must be replaced in order 
, that the productive process for the production of 

I consumptive goods may be continued. This increase 

or at least re-production of productive goods along- 
side with the production of consumptive goods is 
all the more imperative under the pressure of an 
increase of population calling for food, and of an 
increase of people of a productive age calling for 
work and, consequently, capital. A nation which 
would not reproduce and increase its productive cap- 
ital, only producing consumptive goods, would soon 
collapse and face economic bankruptcy and starva- 
tion. (The annual increase of population of 900,000 
in Germany before the war and of at least as many 
annually in the United States called not only for a 
corresponding increase in consumptive goods, but 
also an increase in productive goods by which the 
increased demand for consumptive goods might or 
may be satisfied.) 

467. Do changes or variations in the size of incomes affect 
the volume of consumption? 

If the size of incomes vary within the same class 
— for instance, when one class of laborers in a given 
period receive greater incomes than other classes of 
laborers, the total incomes of all the laborers how- 
ever being of the same collective magnitude as they 
were in a previous period — these variations will not 
considerably effect a change in the volume of con- 
sumption; but variations of income by which the 
total incomes of one class are diminished while the 
incomes of other classes are not increased, naturally 
will result in a decrease of consumption ; increases 
of incomes in favor of one class together with de- 
creases in the incomes of other classes, will imme- 
diately result in a shifting of a greater demand for 
consumptive goods from the less favored classes to 



CONSUMPTION OF GOODS. 155 

the class achieving an increase of incomes. The di- 
rection which the greater demand for consumptive 
goods on the part of the more favored class will take, 
depends upon the character of the class (and its 
numbers) to which the greater incomes have shifted. 
An increase of incomes accruing to the laboring 
class will, on account of the character and the num- 
ber of this class, result in a greater demand for 
consumptive goods and for commodities of moderate 
luxury. An increase of incomes in favor of the 
wealthy class will result in a corresponding increase 
of demand for luxury of the extravagant type. An 
increase of incomes in favor of the laboring class is 
more desirable, even from a mere economic view- 
point (leaving the moral and social viewpoint entirely 
aside), because such an increase will result in greater 
social and economic welfare for a larger number, in 
more work and productive capital and the better 
conservation of the labor power of the nation. 



Article 2. 

DISHARMONY BETWEEN PRODUCTION 
AND CONSUMPTION. 



468. In what does the shif ting* of the size of incomes often 
result? 

In a disturbance of the harmony between pro- 
duction and consumption. 

469. By what other name is this disharmony signified? 

The disharmony between supply and demand. 

470. Which factors contribute to this disharmony between 

supply and demand? 

Increase or decrease of population (emigration, 
immigration, natural increase or decrease of high 



156 CONSUMPTION OF GOODS. 

birth rate or high mortality, war, etc), sudden de- 
crease in the "supply" of productive labor (the pres- 
ent plight of Europe with millions of the best pro- 
ductive forces gone), the shifting of capital from one 
line of production to another, the destruction of 
utilities for productive purposes by new inventions 
(the elimination of the sailing vessel and the disas- 
trous bankruptcies resulting therefrom, in conse- 
quence of the introduction of steamships). 

471. How is this disharmony remedied under normal con- 

ditions of the national economy? 

By a diminution of production, a higher discount 
(that is, a higher rate of interest asked for capital 
loans in order to discourage new undertakings), a 
temporary, automatic fall of prices, the disappear- 
ance of the weaker class of undertakers, etc. 

472. What happens when this disharmony between supply 

and demand is only very slowly remedied? 

In this case the unsalability of the over-supply 
of goods continues, undertakings, firms, banks col- 
lapse, shops are closed and unemployment follows, 
capital (money) is withheld from the market, credit 
is high, incomes for laborers and many others are 
diminished or cease altogether, accentuating even 
more the general stagnation of business and the un- 
salability of commodities — the general financial and 
economic paralysis leaping over to other countries, 
disturbing their trade and consequently their sales, 
their production, their employment and their credit 
institutions. 



CRISES. 157 



Article 3. 
CRISES 



473. What do we call the lingering disharmony between 
supply and demand with the consequences described 
hereabove? 

We call this condition a crisis. 

474. Do you know which prominent Socialists have made 
the periodic appearance of crises a formidable argu- 
ment against the capitalistic order of production? 

Engels and Marx, the latter in his famous stand- 
ard work of "classical" Socialism "Capital." (Das 
Kapital, Hamburg, 1867, 1885, 1894, 1, II, III vols., re- 
spectively.) 

475. How does Lord Overstone describe! crises? 

"State of quiescence, improvement, growing con- 
fidence, prosperity, excitement, overtrading, convul- 
sions, pressure, stagnation, distress, ending again in 
quiescence." (Lord Overstone, London financier and 
M. P., died 1883, the theoretical author of the Bank 
Reform of Peel). 

476. What scope may crises acquire? 

Crises may affect only one or several or all the 
parts and departments of a national economy: agri- 
culture, industry, trade and finance, or only one sec- 
tion of any of these great departments, for instance, 
only the steel or the textile industry. 

477. By what special names are crises known? 

A partial or a general crisis ; agricultural, indus- 
trial, commercial, financial, local, national and inter- 
national; crises of production or consumption. 



158 CRISES. 

478. Which causes may result in a financial (money) crisis? 

Adulteration of coin money, depreciation of the 
currency, paper money issues, sudden or violent 
changes of the value of gold and silver. The de- 
preciation of the currency has been aptly compared 
with the sudden change of long or liquid measure in 
consequence of which a yard suddenly is only half 
a yard, so that the creditor to whom 1000 yards are 
owing would receive only 500 yards of cloth. 

479. In what other crisis does a financial crisis usually 
result? 

In a crisis of production and consumption, either 
partial or general, according to the intensity and ex- 
tent of the financial crisis. 

480. What ia a credit crisis? 

A credit crisis, as the normal consequence of a 
money crisis, is a situation in the credit market 
making it impossible for debtors to meet their obli- 
gations arising out of credit loans extended to them. 

481. How do credit crises originate? 

Generally speaking, credit crises are the natural 
result of money crises. But credit crises in particu- 
lar are the consequence of an unsound extension of 
credits to undertakers especially of the speculative 
class who in their speculative-productive undertak- 
ings have assumed obligations for repayment of 
credit which becomes impossible when the yield from 
their undertakings is not forthcoming. When these 
speculative, albeit productive, undertakings involv- 
ing great credit obligations for capital loans fail, the 
capital is not repaid by the undertakers, credits are 
restricted, consumption falls off, and production, ac- 
cordingly, decreases. 

482. What do rising and falling prices, respectively, in the 

product of an undertaking, indicate? 

Rising prices indicate that the demand for the 
product has not yet been filled; falling prices indi- 
cate that it is filled or nearly filled. 

483. Why do not producers reduce production when prices 



CRISES. 159 

fall, for the purpose of avoiding over-plus production 
and a crisis? 

Not all undertakers estimate the market aright ; 
and if some do, the errors of a few may neutralize 
the carefulness of others and involve them into the 
crisis of overproduction. Even with an overpro- 
duction clearly impending-, production can not be re- 
duced or stopped at will, owing- to the minute special- 
ization of technics and machinery fitted to produce 
only a very particular product, pattern, etc., or stand 
still altogether. The more costly the machinery and 
specialized the product, the greater the loss resulting 
from the idleness of the plant. Hence each producer, 
hoping that the other producer will stop production, 
seeks to produce even more but cheaper with still 
more perfect technics, trusting thereby to stimulate 
demand and to beat his competitors. Impending 
crises, even when foreseen, often intensify the pro- 
gress of technics, accelerate production and the trans- 
ition to giant plants which must produce on a large 
scale in order to exist. Besides, even when under- 
takers, in order to stimulate demand, produce 
cheaper, the retail prices follow the lower wholesale 
prices very slowly, thus neutralizing the efforts of 
the undertakers to avert a crisis. 

484. How can a revolution of transportation technics bring 
about a crisis? 

By raising up a competition in a foreign country 
whose distance from the home country made it im- 
possible to enter into competition. Thus, the opening 
of the Suez Canal and the easy and quick communi- 
cation it afforded between India and Europe resulted 
in an increase of rice imports from India to Italy, 
which latter country then was confronted with a 
crisis of its own rice cultivators, many of whom could 
not compete with the East Indian rice farmers. Also, 
American railways, the Homestead laws of the sixties 
and the introduction of steamships made the grain 
fields of the Mississippi Valley a formidable compet- 
itor to Central European, French and Russian farm- 
ers, resulting in the German grain tariff for the pro- 
tection of German farmers in 1879. (See the au- 
thor's book, "Der Deutsch-amerikanische Farmer," 



160 CRISES. 

1913, pp. 218, 219.) Change of fashion may call 
forth a crisis to a very great and extensive industry. 
Thus the principal export industry of Switzerland, 
the silk and embroidery industry, is almost entirely 
dependent on the whims of fashion, so much so, that 
a single change in fashion for women's wear may 
depreciate the products valued at millions of francs. 
This dependency is all the worse for the reason that 
Switzerland has no voice in determining fashions. 

485. What may be said of the attempt and expediency to 

lend capital to foreign countries in order to avert a 
production crisis at home? 

This expedient may bring temporary relief, es- 
specially when the foreign debtor country buys the 
lending country's goods ; but this relief is turned into 
disaster for the lending country when the borrowing 
country begins to pay interest on its loan or, far 
worse, when it begins repayment of the capital itself 
in the form of exports to the lending country, or 
when the borrowing countries are unable to meet 
their obligations to the lending country (this has 
happened in the cases of the debtor states of Greece, 
Portugal, Serbia, Portugal, Argentina). It is feared 
by many that the repayment of the Allies' debt, es- 
pecially England's, to the United States may result 
in a crisis for our country when that repayment is 
made in the form of exports from the debtor coun- 
tries. 

486. Which are the causes and phenomena usually preced- 

ing and indicating a coming crisis of production and 
consumption? 

War, revolution, crop failures, revolution of 
trade routes, commercial or tariff wars, sudden es- 
tablishment or abolition of protective tariffs, revolu- 
tion in technics of transportation, fashion, shifting 
of capital from one line of production to another, in- 
flation of credit, depreciation of the currency. 

487. In view of all the foregoing, how may a crisis in gen- 

eral be defined? 

A crisis is a transitory, more or less general 
stagnation in the economic life of a people, following 



CRISES. 161 

as a reaction upon a period of unusual prosperity and 
economic aggressiveness. 

488. Which are the three principal theories, i. e., explana- 
tions of the origin of the general crisis? 

The theory of over-production, of under-produc- 
tion, and of a false distribution of productive forces 
(capital and labor). 

489 What does the theory of over-production assert? 

It asserts that the technical conditions and the 
economic organization of production develop and in- 
crease faster than the demand for their product. 
Machinery, inventions, means of rapid transporta- 
tion and the organization of trade make it possible 
to bring more goods into the market than the demand 
can absorb. 

490. What is the content of the theory of under-consump- 

tion? 

This theory is closely allied with the preceding 
but, while admitting the facts of the over-production 
theory, seeks to explain the disharmony between 
overproduction and consumption with the fact that 
the laboring class does not receive an adequate por- 
tion of the national income. But the laboring class, 
being the most numerous class of the entire popula- 
tion, will be a decisive factor in the problem of con- 
sumption or over-production, respectively; and un- 
less the laborers' incomes are commensurate with 
the volume of production, under-consumption and 
crises will follow. 

491. What does the theory of the ill-placement of the pro- 

ductive forces state? 

It states that the anarchic, that is, ill-regulated 
system of production under the reign of free com- 
petition results in an ill-balanced supply of capital 
for the various lines of production, some being over- 
sated, others being underfed with capital. Moreover, 
the capitalists, unable to consume all their income, 
convert it into more capital, which adds to the over- 
charge of certain lines of production and speeds the 
bursting of the crisis. 



162 CRISES. 

492. State briefly the doctrine of Karl Marx (founder of 
"scientific" Socialism and author of Socialism's 
"Bible," Das Kapital). 

According to Marx the last cause of all real crises 
is always the poverty and the limited consumptive 
power of the masses as against the tendency of the 
capitalists so to expand the productive forces as 
though their limit were only the absolute consump- 
tive power of society. Furthermore, according to 
Marx, crises will recur again and again with increas- 
ing intensity, will increasingly result in social misery, 
in an increasing industrial reserve army (the unem- 
ployed who are ready to work at any wage), the con- 
sumptive capacity of the nation will continue to stag- 
nate in consequence of an unsound distribution of in- 
comes, until the last great crisis and the universal 
social revolution will usher in the rule of the prole- 
tariat and the communistic order of production. 

493. Has Marx's and the Socialists' explanation of crises 

from cver-productiori, inadequate incomes of the la- 
borers and the masses and the anarchy of production 
been adopted also by bourgeois students of economy? 

Yes, and they all have erred in not studying 
crises in detail and, consequently, have not offered 
an explanation scientifically acceptable and in har- 
mony with the real facts and genesis of crises. 

494. Where is Marx's theory at fault? 

First, in insisting too much on under-consump- 
tion of the masses and in apparently assuming that 
this under-consumption is permanent, which, doubt- 
less, is not the case. Least of all is there under- 
consumption in the period of prosperity regularly 
preceding the bursting of a crisis, when even the 
lowest strata of the masses often indulge insanely in 
consumption. The period of prosperity collapses be- 
cause the high prices cannot be maintained, and then 
follow under-consumption and depression. Besides 
the under-consumption then is mostly on the side of 
capital goods as coal, steel and machinery. Schmoller 
finds the last and innermost cause of crises in the 



CRISES. 163 

speculative organization of individualistic-egotistic 
business enterprise with its mechanism of exchange 
and competition. 

495. Which measures seem necessary and adequate to re- 
duce the dangers of recurring crises? 

First, to secure a more accurate estimate ot tne 
future demand, by a more perfect system of statistics 
of social, economic and financial character ; second, 
to curb commercial egotism to a degree that will 
bring private interests more in harmony with the 
social interests and with sound economic progress; 
third, to provide the necessary legal and economic 
institutions and apparatus apt to insure the afore- 
mentioned purposes. 

496 Which measures and legal and economic institutions, 
in the sense of the foregoing, are here involved for 
the prevention or reduction of the force of crises? 

The entire system of state laws and state politics 
affecting production, exchange, incomes, trade and 
finance; a sound trust and Kartell system regulated 
or controlled by the state to prevent their develop- 
ment into monopolies; sound banking laws and a 
sound credit policy ; the letting of state and municipal 
contracts during the periods of depression rather than 
in prosperous or normal periods, to forstall or to re- 
lieve unemployment. 

497. What remedies may be applied when a crisis is at 

hand or already fully developed? 

Contraction of production, expansion of demand 
by effecting a fall of prices ; if need be, even govern- 
ment assistance to the great financial institutions at 
short loans, the opening of opportunities for emer- 
gency employment by the state and the communities, 
legal suspension of the payment of debts, called mora- 
toria, and suspension of the liability laws. 

498. In what do crises of the 19th century differ from 

crises in previous ages? . 

In that the latter crises were mostly plainly re- 
ducible to one great tangible cause, such as wars, 
revolutions, crop failures, the shifting of trade routes 
by discoveries, over-production (the Tulip crisis in 



164 CRISES. 

1637 and the French crisis of John Law's Mississippi 
failure in 1720) — while the modern crises are more 
the result of flaws in the delicate mechanism of the 
organization of production and of distribution and 
exchange in our modern national economies. 

499. What is meant by the periodicity of modern crises?, 

Their recurrence at almost regular periods of 
from 10 to 12 years. 

500. Mention the great periodic crises of the last hundred 

years, with their chief causes, and the country, of 
their origin and prevalence. 

1815 — English general crisis, result of Napol- 
eonic wars with its concomitant financial exhaustion 
of the Continental market for ^English products. 

1825 — English general crisis, result of over- 
speculation, too rapid development of canals, tram- 
ways, gas works, over-speculation of English capital 
in South America, crisis is international. 

1836-1839— United States-England, result of un- 
sound credit expansion of English banks and of reck- 
less bank note issues in America; distress following 
this crisis adds fuel to the Chartist movement, the 
first great modern revolutionary labor movement, 
from 1836-1848 in England. 

1847— England, result of over-speculation and 
building of railways, failure of potato crop in Ireland 
and grain crop in United States, crisis being felt in 
many money centers of the continent. 

1857 — England, United States — the first real 
world crisis, following colossal railway expansion, 
gold discovery in California, Australia, New Zealand, 
unsound banknote policy in France, England, Amer- 
ica, and speculation. 

1864— France, 1866, England, local money crisis. 
Also 1869, "Black Friday," Sept. 23, 1869, in United 
States, arising out of paper money speculation by 
Jay Gould. 

1873 — Of Austrian origin develops into world 
crisis, lasting until 1880 ; causes really lay in unsound 
industrial expansion in Germany following war with 
France, over-speculation, too many undertakings, 



CRISES. 165 

crisis is accentuated by cotton and railway crisis in 
1878. 

1882 — France, result of founding of Union Gen- 
erale, purporting to be a means to break the financial 
dominance of the Rothschilds in Europe. This credit 
institution, upon absorbing millions of francs, col- 
lapsed. 

1893 — United States, brought on by experiments 
of Silver Party which undermined American credit 
in European money markets, 75 American railways 
bankrupt, from 400-500 business bankruptcies per 
week, march of "Coxey's Army" of 10,000 to Wash- 
ington. 

1907 — United States, money crisis, brought on 
by inelasticity of bank reserves and of the currency in 
general, and about $500,000,000 of improvised cur- 
rency — clearing house loan certificates in small de- 
nominations, cashier's checks, and other credit emer- 
gency money was put into circulation. This money 
crisis of 1907 matured the Aldrich-Vreeland Act of 
1908, which provided for a National Monetary Com- 
mission for the general reform of the banking sys- 
tem and ultimately led up to the Federal Reserve 
Banks System, the act for the adoption of the system 
being passed in 1913. The Reserve Banks System 
was devised and adopted for the purpose of averting 
crises in the United States in the future, but the 
system has not yet ;m)et with a really severe test. 



CONTENTS. 



PAGE 

FOREWORD HI 

INTRODUCTION' V 

CHAPTER 

I. Political Economy, Fundamental Notions 1 

II. Elementary Facts of Political Economy 3 

Stages and Development — Political Eco- 
nomy a Science. 

III. Principal Economic Systems, Schools, 

and Theories 10 

IV. Conditions of Development of Political 

Economy 15 

V. The Woman Question 18 

VI. Malthusianism 20 

The Statement of Malthus — Criticism of 
Malthusian Doctrine. 

VII. Production and Gain 25 

Production — Co»t of Labor — Land — 
Capital — Forms of Productive Capital. 

VIII. Organization of Production and Gain 42 

The Modern Capitalistic Undertaking — 
The Undertaker and His Functions — The 
Labor Contract — Trade Agreements. 

IX. Free Competition (Or the Regulating Principle 

of Production and Gain) 57 

X. Labor Unions and Unionism 60 

What Unions Are — Militancy of Union- 
ism — Scientific Management — Mediaeval 
Oilds. 

XL Juridical Form of Undertakings 75 

Joint Stock Companies, etc. — Trusts 

167 



168 CONTENTS (continued). 

XII. Exchange and Means of Exchange 85 

Price — Money — Balance of Trade — In- 
ternational Payments. 

XIII. Foreign Trade and Tariff Policies 99 

Patents, Copyrights, Trademarks .Tariffs — 
Effects and Function of the Tariff — 
Commercial Treaties, Navigation Acts — 
List's and Hamilton's Tariff System — 
The Tariff and Secession — Tariffs in the 
United States. 

XIV. Distribution 123 

Private Property — Incomes and the Annual 
Product — Classes of Income — Underta- 
ker's Income — Income flrom Property — 
Rent — How All Incomes Share in National 
Product. 

XV. Consumption of Goods 152 

General Notions — Disharmony between 
Production and Consumption — Crises. 



SOURCES. 



Bibliography of Works on Economics on which the Economic 
Lecture Course in the Pontifical College Josephinum is based and 
which, partly have served as guides and sources to the author's 
present Catechism of Political Economy. 

Heinrich Pesch, S. J., Lehrbuch der Nationaloekonomie, Vol. I, 
11,111, Freiburg 1905, 1909, 1913, respectively. 

Gustav Schmoller, Berlin, Grundriss der Allgemeinen VolkiaJ- 
wirtschaftsleihre, Vol. I, II, Leipzig, 1908, 1904. 

Eugen von Philippovich. Vienna, Grundriss der Politischen Oeko- 
nomie, Tuebingen, Vol. I, II, 1909. 

G. Ruhland, Berlin. System der Politischen Oekonomie, Vol. I, 
II, III, Berlin, 1903, 1906, 1908. 

J. Conrad, Jena, Grundriss zum Studium der Politischen Oeko- 
nomie, Vol. I, II, 1907, 1908. 

Karl Marx, Das Kapital, Vol. I, II, III. 

Karl Buechner, Leipzig, Arbeit und Rhythmus. 

Conrad, Lexis, Elster, Loehning, Handwoerterbuch der Staats- 
wissensihaften, 7 Vols. 

John C. Cummins, University of Wisconsin, History of Labor in 
the United States, 1918, Vol. I, II. 

Richard T. Ely, University of Wisconsin, Outlines of Economics, 
1917. 

Charles J. Bullock, Harvard University, Introduction to the Study 
of Economics, 1913. 

Arthur T. Hadley, Yale University, Introduction to the Study 

Ripley, Bullock, Commons, Selected Readings in Economics, 1916, 
1907, 1905. respectively. 

Frank Koester, The Price of Inefficiency, 1913. 

Charles R. Van Hise, Madison, The Conservation of Natural 
Resources, 1916. 

Adam Smith, The Wealth of Nations. 

Sydney and Beatrice Webb, The Hisltory of Trade Unionism, 
London, 1911. 

Robert Franklin Hoxie, Chicago University, Trade Unionism in 
the United States, 1917. 

169 

12 



170 SOURCES (continued). 

U. B. Phillips, University of Michigan, American Negro Slavery, 
1918. 

Wm. G. Sumner, Yale, Folkways, 1906. 

John A. Ryan, Catholic University, Distributive Justice, 19 1G. 

Hugo Muensterberg, Harvard, Psychology and Industrial Effi- 
ciency, 1913. 

Ricardo, Principles of Political Economy and Taxation. 

J. L. Laughlin, Chicago University, Aus dem Amerikanischen 
Wirtschaftsleben. 

R. Liefmann, Freiburg, i B. University, Kai'telle und Trusts, 
1919. 

George L. Bolen, The Trusts and the Tariff. 

Diehl and Mombert, Freiburg i. B. University, Ausgewaehlte 
Lesestuecke zum Studium der Politischen Oekonomie (a series of 
books on Labor, Capital, Value, Price, Money, Exchange, Wage, 
Interest, Rent, Profit, Population). 

Werner Sombart, Der Bourgeois, Leipzig, 1913 

Werner Sombart, Die Juden und das Wirtschaftsleben, Leipzig. 

Heinrich Herkner, Berlin. 1908, Die Arbeiterfrage. 
And otihers. 



